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.