Calculating the Cost of Your Outstanding AR

Your outstanding accounts receivable (AR) are costing your business money, but how much? The Harvard Business Review published a report detailing just how much outstanding AR costs businesses, depending on how long the account goes unpaid.

The study found that if your invoices are unpaid for 30 days, your business is losing 1.82 percent of the total amount. According to Advantage Business Magazine, Harvard’s calculation takes into account six forms of cost including: time, administrative cost, opportunity cost, predictability, financing, and bad debt (Click here for more information).

As you would expect, the longer you carry your outstanding AR the more it costs your business in each area. If your accounts are unpaid for 60 days you lose 10.29 percent. If you stretch yourself 90 days without payment, you lose 19.74 percent. And, most disturbingly, if your client hasn’t paid in 120 days, your business is losing 30.71 percent of the account total.

When you calculate the cost of your outstanding AR, it’s easy to get discouraged. Even at the thirty-day mark, your business cash flow is stifled, making you less agile and less able to take advantage of opportunities. The more you can reduce your outstanding AR costs, the better.

Unfortunately, the solution is not as straightforward as you may think. Sinking more resources into administrative costs to get the invoice paid earlier isn’t ideal. Yes, you may get the money in earlier, but you’ve bumped up your costs, so you’re losing roughly the same amount of money, perhaps more if your invoicing strategies don’t work.

Instead of focusing on business invoicing, you can use invoice factoring to cut your costs significantly. You send your invoice to J D Factors, who pays you within 24 hours in cash, and takes on the cost of invoicing your clients or customers. This can save you anywhere from one to 30 percent of each invoice’s value, which adds up quite significantly.

Plus, invoice factoring gives you a solution to the outstanding AR cost problem, means you’ll have the freedom to use your resources strategically. Instead of spending money on administration to get invoices in faster, you will be able to spend that money wherever your business has the biggest opportunity.

Perhaps for you that’s marketing, where you can gain more clients and grow. Or, perhaps that’s in staffing, where you can invest in new talent to increase your efficiency and push your business forward. Whatever your biggest opportunity is, invoice factoring will give you the funds and flexibility to pursue it.

The benefit to you is that you can stop chasing your tail trying to get money you’ve already earned. The benefit for us at J D Factors is that as your business overcomes cash flow problems and grows, you send more work our way.

Invoice factoring can give you the ability to focus on doing what you do best, while our expert team at J D Factors focuses on how to collect your outstanding accounts receivable. Contact J D Factors to apply for our services or to request a custom quote.

5 Ways Invoice Factoring Can Improve Your Bottom Line

Small and medium enterprises (SME) face a whole series of problems that stem from unhealthy cash flow. Invoice factoring can take care of all these challenges, which will directly improve your bottom line. 

Here are just five ways that invoice factoring can solve your biggest challenges:

1. Stop draining resources collecting payment

Invoice factoring is handing over your accounts payable for cash. After you produce your invoice, J D Factors sends you cash. And for you, that’s it. J D Factors does all the work of collecting payment from your customers and clients. That means you can dramatically cut down on administrative staff you’re your personal time asking clients for the money you’ve earned. That’s why accounts receivable financing is an investment that saves you money.

2. Get the stability to take on larger projects

You need steady cash flow to take on the larger projects that will propel your business forward. Under-investing is a mistake, one that many SMEs make because they are afraid of having to pause a project due to a lack of funds. This is a very real concern for SMEs because scaling back or pausing large projects can negatively impact relationships with clients, staff, vendors, and hurt your overall reputation. But, with factoring you have the stability to complete larger, long-term projects without those risks.

3. Manage your workforce

For employees, not getting paid on time and in full is a deal-breaker. What’s worse is your best employees will be the least patient with delays on payday. Invoice factoring will give you better relationships with your employees, who depend on you to deliver their wages and livelihood.

Factoring also gives you the freedom to expand your workforce without worrying that you’ll run out of funds for new employees. This workforce security is necessary for your business to take on larger projects and more work. 

4. Take advantage of new opportunities

You need the flexibility to jump on time-sensitive opportunities when you want to grow your business. Bank loans take time, and even if most of your customers are highly reliable, there is always a chance they may delay a payment. You don’t want to miss a big opportunity because a customer or client is holding out on you. J D Factors provides you with cash for each invoice right away, so you always have the funds on hand to take advantage of unexpected opportunities.

5. Stop worrying about bad debt

Unlike most invoice factoring companies, J D Factors offers non-recourse factoring. That means that if a customer or client doesn’t pay you, we take the loss. This allows you to truly lift the risk of non-payment from your business. You can take on clients with whom you don’t have established relations without worrying if they are reliable. And, you never have to pressure your clients for payment, J D Factors takes care of every step.

Invoice factoring isn’t just convenient, it’s also a great way to grow your business and improve your bottom line. Sound like the solution to all your business headaches? Contact J D Factors now to make your business more stable, efficient, and flexible.

8 Tips to Get Paid Faster

Too many small business owners feel powerless when collecting payment from their clients. They don’t need to. Use these tips to adjust your invoicing practices and you’ll rein in those serial late-payers and bring dependability to your business’s cash flow.

1. Ask Nicely

Data collected by invoice software Freshbooks suggests that, with a little courtesy, you can increase the likelihood of payment by 5 percent.  That’s a sizeable reward for a few please and thank you’s – and it reflects well on you and your business.

2. Make Payment Terms Absolutely Clear

What forms of payment do you accept? When is payment due? Are there late fees? The answers to these questions, and any questions specific to your business, should be clear, conspicuous, and in writing. That makes it easier for the client to pay, and if they don’t, you can point out that they had all the necessary information ahead of time.

Consider speaking with your client about their expectations before defining these terms. Listening to the client and building mutual understanding will make them more likely to meet your payment terms.

3. Short, Specific Payment Terms

With modern communication 1 or 2 weeks is a more appropriate payment window than 30 days. Use exact terms like 7 days, and even include the date payment is due on your invoice.

4. Invoice ASAP

Some small businesses let smaller administrative tasks like invoicing fall by the wayside. But you shouldn’t think of a job as finished until the invoice has been sent. Don’t expect promptness from your clients if your business isn’t prompt.

5. Streamline the Invoicing Process

Help yourself by investing in invoicing software. Making it easier to send out clear invoices will encourage you to keep on top of them. You should also number your invoices. Numbering invoices simplifies accessing billing information so you always know where a client is in the billing process.

6. Address the Invoice to Whoever Pays It

Often the person who ordered the work will not be the one paying the bill. Ask your clients who is in charge of accounts so you can send the invoice to them directly. It’ll make both your jobs easier.

7. Send Reminders Before and After the Payment Date

Some invoicing software gives you the option of automatically e-mailing your clients to remind them that their payment deadline is coming up. You might also consider calling your client. At J D Factors, we suggest asking your client about their satisfaction with your work, and then gently reminding them of the payment date. If they still miss the deadline politely, but firmly, remind them.

8. Late Fees

If you clearly stated late fees in your policy, then there’s no reason not to apply late fees. Applying late fees shows clients that you mean what you say, and that you haven’t forgotten about them. However, if first time offenders ask for leniency consider waiving those fees— they’ll be grateful.

Revamping your invoicing practices can have a dramatic impact on your cash flow. Be clear, consistent, and quick, and your clients will do the same. Struggling to collect on an invoice? Call me, the Cash Flow King for help!

Insufficient Cash Flow Hampers Ambition

Faraday Future has plans to overtake Tesla Motors as the first name in electric cars. But since presenting their impressive new car – the FF19 – at CES 2017 the company has announced it has been forced to scale back its plans.

Yes, Faraday faces challenges because it is developing new technology – and because the auto industry is notoriously difficult to break into – but, like many small and medium-sized businesses, its problems with cash flow are arguably the biggest challenge.

Over Investment

Faraday’s cash flow problems may have begun with their parent company, LeEco Group, who admitted to over-investing in various projects. LeEco Group is a sprawling umbrella holding company that found itself expanding too quickly.

When to expand is a tough question for small and medium-sized businesses. Do it too slowly and you risk missing the opportunity altogether, but too quickly and you could easily over-extend yourself and flop.

In Faraday’s case, their parent company LeEco Group expanded too fast and was unable to raise sufficient funds to bolster its cash flow, and its various subsidiaries, including Faraday, were affected.

Over Estimating Ability

In April 2016 Faraday began work on an enormous factory in the Nevada desert, only to halt work in October. This delay in construction resulted in rumours of financial difficulties.

Executives explained these difficulties, saying Faraday had to carefully manage its resources between the different projects that it has on the go. Specifically, Faraday was attempting to build its brand by focusing more on the marketing and sales. But it was too little, too late.

Scaling Back

Presumably Faraday was diverting resources away from construction and towards the production of their CES presentation. Since then it seems they have reduced their plans for a 3 million square foot factory, settling for only 650 000 square feet instead. And at that factory they will only produce two different car models, rather than following their original plan of seven.

Unpaid Bills

One of the most concerning signs of cash flow issues are allegations of unpaid bills. Faraday has been the subject of legal proceedings by The Mill Group, who were contracted to create a visual presentation. In the past Faraday, has also encountered issues in compensating suppliers, and its parent company has been accused of not fulfilling their financial obligations. If nothing else this demonstrates how a lack of cash flow can create new problems for a business, and potentially damage their credibility.

No matter the size of your company, not having the cash available to pay vendors, consultants, and employees is a huge warning sign that your cash flow is out of control. If your small or medium sized business is struggling to find the cash to pay your debts, then don’t risk jeopardizing your credibility. Call J D Factors for help.

Don’t Be Afraid to Take a New Approach

Scaling back is often a good thing. For Faraday, the company has revaluated in the face of its cash flow struggles and is working to stretch its cash so it can deliver a product – even if it does not fulfill their initial ambition. This strategy is like Tesla’s approach of selling more expensive cars first while continuing to work to produce more affordable models.  

Although Faraday is a large company, their challenges demonstrate the importance of carefully managing cash flow for businesses of all sizes. Whether your company is small or large, poor cash flow often causes unnecessary difficulties and can even jeopardize your business.

Sources:

Faraday’s Future At Risk From Parent Company LeEco’s Cash Deficiency? Inside EV.

Faraday Future FF 91 CES 2017 Reveal Key Moments. YouTube.

Reviewing Online Cash Flow Calculators

You may be surprised to learn that many profitable small businesses fail. To succeed you need to do more than move product, you need to effectively manage the cash flowing in and out of your business.

Using a cash flow calculator streamlines the management of your business’s cash flow so you can plan more efficiently. Get started by checking out these cash flow calculators.

TDPersonal Cash Flow Calculator

TD designed this cash flow calculator for personal use, but its features suit small businesses nicely. This cash flow calculator is the most customizable on our list.

Expenses are broken down by category – like housing, or transportation – and it allows you to add custom sub-categories. Not only can you name these sub-categories whatever you want you can also set whether they’re an annual, monthly, or weekly expense.

The cash flow calculator presents your results on a bar graph, showing your cash flow, and a pie chart, which breaks down your expenses by category. Plus, you can toggle between representations of your monthly, and annual cash flow.

ThinkBusiness Free Cash Flow Calculators

Although this cash flow calculator is less customizable, it is designed for businesses. It breaks down income and expenses for you and is based on monthly calculations.

What makes this cash flow calculator handy is how it represents your cash flow visually. The graph gives you an idea of your cash flow throughout the year and changes as you enter new data.

We recommend that business owners that are still working out their budget take advantage of this cash flow calculator’s responsiveness. Seeing the graph change as you trim, or expand your budget gives you a great idea of how you can best utilize your resources.

And once you’ve finished you can easily download and print!

RBCSmall Business Cash Flow Tool

RBC’s cash flow calculator caters to small businesses, and stands out because it starts by asking about your business. Before entering your projections, you can select your priorities (like “My business is growing and I need more space”) and this is factored into recommendations once your results are shown.

Once you have entered your data, a bar graph projecting your cash flow for six months will be displayed. By adjusting income and expenses you can see how your cash flow is altered. The only drawback is that this cash flow tool lacks the precision of Think Business’s cash flow calculator.

Still, RBC’s focus on small businesses and its recommendations make this an especially valuable tool for new business owners.

Traditional banks like RBC and TD offer some great cash flow tools, but aren’t always able to provide small business owners access to their traditional loan products. Give J D Factors a call if you’re having trouble getting approval with your bank, we may be able to help.

KeyBank Cash Flow Calculator

Data on this cash flow calculator is input by sliding a pointer to indicate expenses and income. This makes it the quickest cash flow calculator in seeing a visual representation of your cash flow. Afterwards it lets you “view report” to see how your cash flow breaks down.

This cash flow calculator might be the easiest to use, especially because it includes a glossary of terms at the bottom, but feels less comprehensive. Still, a very useful tool for new business owners.

Ultimately, getting a handle on your cash flow will help your business increase profits, grow and survive. Do you have questions about your small businesses’ cash flow? Email me, the Cash Flow King at chernandez@jdfactors.com for cash flow tips and advice.

Marathon Oil: Cutting Costs and Raising Cash Flow

For the last five consecutive quarters Marathon Oil has reported losses. So why hasn’t the company lost investor confidence? Investors have renewed faith in the company because it has consistently weathered difficult periods more effectively than analysts predicted by focusing on their cash flow.

Marathon Oil may be a huge company, but their success still translates into many important lessons for small business owners.

Focus on Your Cash Flow

Improved oil prices have certainly helped boost Marathon’s revenue, but the fact is that this company has always focused on strong cash flow. Marathon’s cash flow was excellent before the increase in oil prices, which means the fluctuation in oil prices simply helped add to Marathon’s good practices.

Lesson for small businesses: Commodity prices and other factors will always go up and down. Focus on your cash flow and make contingency plans so that you will be able to weather any storm.

Investing in Assets

To stay afloat during difficult times Marathon cut costs and increased cash flow. Here’s how they did it:   

Marathon Oil worked with Meridium, a company that focuses on predicting and preventing asset failure, to better control the reliability of equipment at their refineries. This investment led to immediate and annual savings and also helped optimize the performance of Marathon’s refineries.  

Meridium gathered data on the failure history of equipment and their analysis of this data allowed Marathon to make decisions on how to proactively replace equipment. Having an objective system to make these decisions allowed Marathon to more effectively manage their equipment without taxing their cash flow, which lowered operating costs.

By investing in the right assets, Marathon saved over 14 million dollars. The company expects to realize comparable savings by continuing to use available cash flow to strategically invest in their assets.

Lesson for small businesses: Maintain a strong cash flow so that you are able to invest in key areas of your business. Smart investments into your company will pay off in the long-term.

Investing in Human Capital

Marathon has also invested in human assets – its work force. In a video on the company’s website they list “investing in our people” as one of their key strategies moving forward.

A commitment to dedicating resources to maintaining employee competence, as well as growing their abilities, means that Marathon can operate dynamically and with confidence to adapt and improve their performance.

Lesson for small businesses:  Don’t let cash flow worries prevent you from making an investment in the most valuable asset that your business has: you and your employees.

Investing in Core Assets

Marathon Oil divested over a billion dollars’ worth of assets so the company could reduce its exposure to risk. To achieve this Marathon shifted resources away from non-core assets. Much of the capital acquired through divesting was then put towards the development of the company’s core assets. Additionally the company also purchased new assets in the form of large reserves and immediately began ramping up production in these new resource rich areas.

While doing this, in 2016 Marathon also managed to reduce its exploration and production costs in North America by 28%, compared to the previous year.

Lesson for small businesses: Go back to basics, focus on your core business model and don’t spread your operating costs too thin.

Getting the Most Out of Existing Assets

By beginning to produce gas at their Alba oil field Marathon extended the life of that asset by 8 years. This crucial decision helped to compensate for decreased production in the United States during 2016. Now, as the company looks forward to 2017 they regard the Alba oil field as a “significant free cash flow generator” while they continue to invest in their North American assets.

Marathon made it through difficult periods by embracing new strategies and continually investing in their business with an aim to increase revenue and decrease operating costs. They successfully refocused their overall strategy and reworked their regular operations.

Lesson for small businesses: Always be on the lookout for new opportunities, strategies, and ways to utilize your existing assets – and make sure that you have the financial flexibility to act quickly.

Lessons

The lesson here is one that all businesses, of every size can adopt. With a strong cash flow you can maximize business efficiency and profits by:

·       Allowing you to make and execute contingency plans

·       Making the most of your existing assets

·       Investing in new and core assets

·       Investing in your people

When it comes to the benefits of strong cash flow, Marathon Oil is a great case in point. Is your SME looking to maximize your cash flow? Call the cash flow experts at J D Factors to get started.

Factoring - More than Math

Factoring is more than a math term. It’s a solution to one of business’s most common problems: cash flow. So whether your business needs working capital to expand or to cover operating costs, factoring can help your business reach its goals.

What Is Factoring?

Factoring is when your business sells its invoices to a third party for a discounted rate. The third party then assumes all liability of non-payment. This means that you’re not liable if you don’t get paid, the lender is responsible. Rather than wait for weeks, or even months for slow paying customers you can obtain working capital by selling your invoices to J D Factors at an agreed upon rate.

Factoring gives your business predictable income and a steady flow of working capital, making it easier to invest in growing your business.

J D Factors provides non-recourse factoring. That means that if an invoice is not paid for credit reasons then you are not liable. JD Factors assumes the risk.

How Does Factoring Work?

After you have set up your account with J D Factors the process is simple:

1.       Send us your invoices

2.       We verify the invoices and send them to your customers

3.       You receive cash in your account within twenty-four hours.

You can submit these invoices anytime through your online account. The ease and simplicity of an online system offers multiple benefits to entrepreneurs or other business owners who may keep irregular hours.

What Are the Benefits of Factoring?

Here are some of the ways that factoring can give your business an advantage:

1. Speed, Flexibility, and Control

Rather than depending on potentially slow paying customers your business can receive an immediate injection of cash. The main advantages this speed affords are control and flexibility.

Factoring puts you in control of your business by circumventing more unpredictable streams of working capital. Customers will not always pay promptly, and bank loans take time to process. In a worst-case scenario, if your customer goes bankrupt or has credit issues they may never be able to pay you the money they owe. With factoring, companies like J D Factors assume all the liability up front, so you don’t have to worry if your customer doesn’t come through with payment.

J D Factors can help bring certitude to your long-term strategy and get you the capital you need to seize opportunities that present themselves.

2. No Banks

By choosing factoring you can also avoid incurring debt. Loans can be an effective tool when growing your business, but they are not without risk. They can also prove expensive.

That is of course if you are approved for a loan. Many small or new businesses find qualifying for a loan difficult, but factoring is an effective alternative for growing businesses.

3. Outsource Your Collections

Businesses of all sizes, from Fortune 500 companies down to sole proprietors have used factoring. One reason is because collecting payment from customers can drain resources.

With factoring, your business will not have to sink time and personnel on collecting payment from a job you just completed. We collect on the invoices and assume all liability if the invoices aren’t paid so you can look ahead to your next project, to hiring new personnel, or to growing your business.

Build a partnership

Partnering with J D Factors gives you greater control over the future of your business by regulating your cash flow. Factoring simplifies the collections process so that you can look forward and focus your time, money, energy, and manpower, on the next task. Contact us and let’s talk about how factoring can work for you.