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A lot can change in 72 hours - How much is late payment costing you?

A lot can change in 72 hours - How much is late payment costing you?

If your customers are taking longer and longer to pay their bills, you are not alone.

The latest Dun and Bradstreet quarterly figures show that the average SME has their invoices paid in around 52 days, well beyond the standard 30 day payment period.

There are serious cash flow and cost implications of late payment, particularly for high turnover, low margin businesses.

For every $10million of annual turnover, a 3 day drift in days outstanding takes $82,000 out of your working capital.

And if that hole has to be filled by increased borrowings, at 10%, just like that your business has suffered an $8,200 hit in additional interest.

Getting paid on time is a challenge, but businesses can help themselves.

Make sure you have the correct details including the payment terms on their invoice, quoting the correct purchase order numbers and ensuring that the detail such as number of units and price per unit is accurate.

It’s also important to issue invoices and statements in a timely manner and to have an effective collections program in place.

Days outstanding is more than just a statistic - it has significant cash and cost implications. The lower the better and it can be influenced.

By way of comparison the average days outstanding across the FactorONE client base in Australia at the end of the March quarter was 47 days, a difference of 8 days against the national average, which equates to a positive working capital variance of $217K per $10M of annual turnover.

How long is too long for an SME to wait for payment? This can differ from business to business.

Small businesses should be aware that big companies use huge groups of small suppliers as their "bank". There's a danger in business if you allow your customer to dictate how long they take to pay - most likely they'll survive at your expense. In such situations, it may be worthwhile considering invoice finance, also known as factoring, as way of  ensuring your business has fast access to working capital when needed.

Manage Cash Flow from Day One
The Cash Conversion Cycle and Factoring

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