The True Cost of Your Receivables – What You Stand to Lose with Outstanding AR

Outstanding accounts receivable costs your business more than you think—and chances are you’re already frustrated with your business’ cash flow. Measure your costs with days sales outstanding (DSO), consider borrowing costs, and discover how to lower the costs of your outstanding accounts receivable.

Consider Borrowing Costs

To improve cash flow, many companies borrow against their account receivables. The largest companies often get a reasonable interest rate, but the smaller your company is, the more likely it is that you’ll get an unwieldy interest rate —just to access money you’ve already earned.

Tip: Reduce your borrowing costs by getting your accounts receivable filled faster and reducing your DSO.

Measure Your Days Sales Outstanding

There are a few ways to measure your account receivables, but DSO is one of the most valuable methods. It measures how many days it takes from delivering your product or service until the cash from that payment is in your hands.

Most companies add 30 days to their DSO right off the bat by having net 30 payment terms, and net 60 is quite common as well. But when a customer pays a few days past that, let’s say 14, your DSO is 74. That’s 74 days of missed opportunities.

You can cut your average DSO outright if you can reduce your payment terms, but this can be frustrating for clients. Otherwise, you’re essentially at the mercy of your clients and when they choose to pay.

While you wait, you collect borrowing costs and you lose out on business opportunities you may have pursued if you had a better cash flow. Even if you collect interest on outstanding payments you won’t outstrip your overall borrowing costs.

If you are growing, you’ll find you have a higher average DSO, as new clients drain your cash without immediately paying you. This creates a real problem if you want to keep growing. And, of course, you do want to keep growing.

You’re Losing Time and Money

Collecting your outstanding accounts receivable (AR) faster is possible, but it costs both time and money. Hiring experienced collections staff and giving them the resources to pursue your clients is a large drain on your time and resources. There are staff and collections strategies that can get your clients payments faster, but at what cost? There is a better alternative.

Accounts Receivable Financing

There’s another way to reduce the cost of your outstanding AR. Invoice factoring through J D Factors will reduce your DSO to one! You send your invoice to us, not to your client, and we pay you the balance within 24 hours.

From there, we invoice your client on your behalf and take on the costs of collecting. In fact, J D Factors offers non-recourse factoring, which means we also take on the risk of non-payment. In a single day you’ll have the resources you need to keep investing in your business. Stop worrying about borrowing costs and sinking time and money into collecting on your outstanding accounts receivables. Contact J D Factors today to start the approval process.

Improve Your Cash Flow by Clearing These Payment Hurdles

Poor cash flow is a constraint on your business. Did you know that there are many payment hurdles keeping your clients and customers from paying you faster? Here are some tips on how to overcome these hurdles and minimize your outstanding payments:

1. Negotiate Payment Options Up-Front

People are used to doing business a certain way, and when your payment policies differ from what they are used to, they may find themselves unprepared to make your payment when it is due. You can avoid this problem by clearly stating your terms before you provide your goods or services.

If your terms are radically different from what your client was expecting and they’re already late with your payment then it makes sense to compromise with them on terms this time and insist your policies be followed in the future.

It is also a good idea to allow multiple payment plans, so that your clients can pick a schedule that works for them. However, not all business structures allow for clients to pick and choose which payment elements they like, and this can become complicated if you have many clients asking for different payment plans. Ultimately, all of your payment plans should work for you. It’s fair to ask for account payables within 30 days of your invoice. 

2. Confront Outstanding Accounts

You’re very busy, but it’s important to contact a client the moment they miss a payment. Your early and polite request will give them an opportunity to pay you if they simply forgot or made a clerical error. If not, this early pressure makes it clear that you’re paying attention to their account. It also minimizes their excuses later. They can’t argue they weren’t aware a payment was overdue if you contacted them about it immediately.

If they continue to delay their payment, you should be reminding them regularly, in an escalating tone, that their payment is past due. Remind them that your late payment policies may come into effect if they continue to default on their payment.

3.  Enforce Your Policies

Set policies for late payments and enforce them, otherwise routinely late clients will take advantage of you, to your business’ detriment. Claim interest where it’s due and if this isn’t part of your existing policy be sure to set a new policy explaining that late payments will accrue interest. Having to pay more money if they continue to delay payment is very motivating to clients, especially when they are strapped for cash.

4. Keep Struggling Customers and Clients with Factoring

You customers and clients might be struggling financially, whether their industry has taken a bad turn or their business is failing, or their personal finances are not in order. Of course, you feel for you clients because you have a good relationship with them, which makes overcoming this payment hurdle a challenge.

If you’ve decided to extend the payment period for a struggling customer, protect yourself next time and insist they make a deposit up front. You can also do this with habitually late clients or customers.

Alternatively, factoring is a solution to your cash flow problems that doesn’t require you to risk souring your relationship with your customers and clients in order to get paid. Through J D Factors you can get up-front accounts receivable funding as soon as you send out an invoice, and we take care of chasing down your customers for payment. We even take on the credit risk! Contact J D Factors today to learn more.