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.

Non-Recourse Factoring

You’ve likely dealt with frustrating clients before. Sometimes a debtor will simply avoid you until they declare bankruptcy. Some are just chronically late or irresponsible and dealing with them can be just as tough.

Sometimes, it takes a lot of work to get clients to hand over the money you’ve earned. There are plenty of techniques to chase clients down, including contacting them regularly, using an escalating tone, claiming interest, and even bringing the client to court. Not only will these steps sour your relationship, but they cost time and money you don’t have.

With factoring, you receive your payment from a factoring company, who issues your invoices and collects payment on your behalf. Factoring is a huge benefit to your business, but non-recourse factoring is even better. That’s because non-recourse factoring removes the credit risk of unpaid invoices.

With traditional factoring, if a client or customer refuses to pay, the factoring company usually expects you to buy the accounts back, at their original cost. To do this, they often withhold some of the value of your future invoices (which defeats the main benefit of invoice factoring—it’s predictability). While it’s helpful that you save some of the costs of dealing with your unpaid invoices, this kind of accounts receivable financing leaves the biggest risk in your hands.

Non-Recourse is The Smarter Choice

Non-recourse factoring is different. At J D Factors, we pay you within 24-hours after you issue an invoice and we take on all the risk and costs of dealing with your clients. If they never pay, that’s our loss. Period. That’s why non-recourse factoring is a great risk management option for your business.

At J D Factors, we’re experts at collecting on accounts receivables. We have the experience and techniques to minimize the risk from the accounts we take from you. We’re good at what we do, so you can spend your time doing what your business is all about—delivering your products or services.

An Investment in Your Time

Rather than worrying about unpaid invoices or cash flow, with non-recourse factoring you simply pay a factoring fee to save yourself the time and money you’d be spending chasing after clients. When you offload your unpaid invoices to J D Factors you won’t have the worry of a credit risk associated with some clients. Non-recourse factor allows you to establish worry-free relationships with new clients. If they turn out to be bad risks, the risk is ours. You’ll still get paid.

Contact J D Factors to start non-recourse factoring and truly free yourself from the drain of unpaid invoices.

Sources:

http://blog.factorfunding.com/blog/what-are-the-differences-between-recourse-and-non-recourse-factoring/

http://www.rtsfinancial.com/guides/difference-between-recourse-and-non-recourse-factoring

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.

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.