For most wholesale marketers, receivables are the largest asset on the balance sheet. If your collection time is “average,” you have about 16 days of sales tied up in your receivables.
To put this in perspective, a $10MM annual revenue marketer has about a half-million dollars in receivables. A $50MM marketer will have over $2MM in receivables. If your receivables management is less than optimal, the amount of receivables could easily double.
Most of us spend time at the tail end of the process — collections. We feel we don’t have a problem with receivables until a customer fails to pay our invoice. Instead, challenge yourself to think of receivables as a process or a series of steps. By clearly defining the steps, you’ll be able to see that non-payment is way down the line in this process.
To help you visualize a typical receivables process, we’ve flow charted the steps on page 2. Take a moment to review these steps right now.
Notice that although our ultimate goal is to get paid, there are numerous steps that should occur before we go to collect.
First and foremost, we must determine what customers we want. Contrary to popular opinion, we don’t want everyone as a customer for the pure and simple reason that not everyone pays their bills in a timely manner!
Before you spend inordinate sales time wooing an account to your company, only to find when you receive the credit application that they are flakes, take the time to do your credit check up front before any sales calls! If you figure the cost of one outside sales call against the cost of a credit report, you’ll find pre-call credit checks are cost-effective.
Setting credit terms to be competitive within your target market is also critical. Bear in mind, however, that time is money when it comes to terms. The longer you give your customers to pay, the more it costs you. Consider the difference in the per-load cost of money for these typical fuel terms. (We used a $10,000 load and a 10% interest factor for these calculations.)
Terms Per-Load Cost
10 days $27.40
15 days $41.10
30 days $82.19
There is a true hard-dollar cost to longer terms. It is also critically important how your terms are articulated to the customer. One Meridian client found his terms were being sabotaged by a salesman that was telling customers they could pay late without any problem!
If you get your sales force calling only on creditworthy accounts, and set and enforce competitive terms, you’ll avoid future receivables problems. Add to this clear, accurate and timely billings with an EFT collection process, and receivables will never be a problem again!
