Are you a part-time banker for your customers?
Look at your accounts receivable aging schedule and count the amount of accounts over 30 days.
Congratulations, you are (drum roll , please) stretching credit to those clients. You are not getting paid for delivering your end of the bargain in a prompt way and as a final result you are granting the usage of your hard earned cash to your customer for free of charge. See Largest Trucking Factoring Companies.
Not precisely the business venture you assumed you were entering, is it? Ask yourself this question: If those customers of yours headed to a bank, borrowed the same amount of cash for the very same amount of time, would they expect to pay a considerable amount of interest for the privilege? Of course they would!
And think of this: Not simply are you receiving no interest on that money, but, more notably, you are also giving up the usage of that money when you are standing by for your customer to pay you. Economists have a fancy title for this: opportunity cost. Just what is the cost of not having that cash available? In essence, your customers are asking you to subsidize their business by stretching terms and enabling them to pay in 30 days (and usually much longer, right?). However what is it setting you back you in ” passed up ventures” the moment your money is restricted in your invoices?
What’s a “missed possibility?” Listed below are some examples:.
- Parts offered to you by a vendor at below-market rates.
-A possibility to get a component of equipment at a bargain.
-The option to create more during any given month.
And the listing could go on and on. The expense of this credit to your customers will have to manifest an impact someplace. Someone will have to pay the piper. Oftentimes: A) you are soaking up the cost, resulting in reduced profits, or B) all your other customers are paying higher prices across the board. One way or the other, you are paying for another person’s company and perhaps losing hard earned cash for the opportunity to do it.
Many firms lose cash in this way. Our team see this predicament everyday and in each circumstance the owners are astounded to know just how much money they are really forfeiting. Also see Largest Trucking Factoring Companies.