Uncollected Revenue Puts Your Business at Risk

Sales and credit go hand-in-hand in today’s business environment. To get new customers, you have to offer credit terms. And, every credit manager knows that some of those sales will be delinquent or even default causing your company to write them off as bad debt.

Uncollected dollars nibble at your company’s profitability and can become a real threat to the survival of your business. In this economy with low margins and tight credit, businesses need to take AR management more seriously than ever. Even your long standing customers may be struggling and you can no longer take anything for granted.

An essential strategy is to have an internal follow up plan in place that deals with accounts as soon as they go even one day past due. In our Veri-Cheque October Newsletter we offered several tips on how to manage your account receivables effectively.

To keep a close watch on all your accounts, we suggest using a simple formula for working out the Days Sales Outstanding (DSO), a useful management tool to measure the average age of account receivables. It shows both the age, in terms of days, of a company’s account receivables and the average time it takes to turn receivables into cash.

Based on your company’s business cycle, you can calculate DSO from month to month or for longer periods:
Annual – 365 days
Semi-Annual – 182 days
Quarterly – 91 days
Monthly – 30 days

Three pieces of information are required for the calculation:
Your total receivables in the period
Your total credit sales in the period (do not include cash sales)
The number of days in the period

Example on how to calculate your company’s DSO:
If calculating your DSO based on quarterly sales, take your total receivables divided by your annual sales and multiply by 91.

Total Receivables = $1,300,000
Total Credit Sales = $3,000,000
Number of days in period = 91

(1,300,000 divided by 3,000,000) X 91 = 40 days (DSO)
It therefore takes 40 days on average for your customers to pay their invoices.

A lower number of days indicate your company is collecting outstanding receivables quickly. Higher DSO can indicate poor follow up on delinquencies and may result in cash flow problems for your business.

When analyzing your company’s performance, if the trend is for DSO to go higher, it indicates your customers are taking longer to pay their bills. A number of factors can cause this including financial issues on the part of your customers or inefficiencies with your company’s collections department that requires attention.

Many businesses today reduce their financial exposure and count on an extra layer of protection by insuring their accounts against bad debt through Veri-Cheque’s Accounts Receivable Guarantee Program. It’s certainly a very good defensive move for companies looking to stay solvent over the long run. Feel free to give us a call 800-268-3284 to get more information about how we can help your business.

10 Tips to Speed Up Collection of Your Accounts Receivable

Any business owner knows this all important rule – a sale isn’t a sale until the cash is in your bank account.

Collecting accounts receivable may not be the most pleasant task when running a business, but it’s one of the most important. Not having enough operating cash when you need it will undoubtedly affect the bottom line of your business, and if cash flow is poorly managed it can even put your business at risk.

Here are some helpful tips to stay on top of your accounts receivable and improve your credit to cash results:

1) Send out bills promptly. Your best chance to get paid is in the first 30 days. Outline the agreed terms of payment (this should be agreed upon at the time of sale) and indicate interest will be charged on late payments.
2) Make sure invoices are accurate and provide correct mailing addresses and contact information since errors provide an excuse for not paying.
3) Make it easy for your customers to pay you by offering all standard payment options – credit card, cheque or direct deposit into your bank account.
4) Establish a schedule for collection for each account. Don’t wait until an invoice is past due before taking action.
5) Call right away when an account reaches its due date for payment. Don’t rely on letters, faxes and emails that can be easily ignored.
6) Attitude counts. As it can be uncomfortable asking customers for money have a trained accounts receivable manager with client-friendly skills make the calls. Treat them as customer services calls, not collection calls, as you don’t want to loose your customers.
7) Develop long-term business relationships with your customers. They will be less likely to delay payment if you are on friendly terms.
8) Be flexible but firm. If necessary work with your customers to establish a repayment schedule but be firm in holding your customers accountable to meet their financial obligation.
9) Be persistent. Often a customer will pay the invoice for no other reason than to stop receiving your calls and reminders.
10) No matter how diligent you are about your collection process, there will always be some customers who will not pay you. In the same way people can buy insurance to protect themselves from job loss or disability, companies can buy credit protection with Veri-Cheque’s Accounts Receivable Guarantee program to protect your business from financial risk when customers are unable to pay you for goods and services they purchased. Under this program, Veri-Cheque pays you for any past due invoices including bankruptcies. In addition, Veri-Cheque offers a Cheque Guarantee program, where you receive payment for any returned guaranteed cheques on authorized C.O.D. orders.

As a credit authority to businesses, Veri-Cheque’s Credit Protection and Cheque Guarantee Programs allow companies to safeguard their commercial accounts receivable against unexpected financial losses. Companies are guaranteed payment for goods sold to customers anywhere in Canada and can even extend higher credit limits to their customers, thus reducing the chance of nonpayment, in effect allowing them to grow their sales risk-free.

Our company’s credit managers work with each company to better manage their business and increase profits. We assume the risk of nonpayment and eliminate the need for expensive debt collection services. Give us a call at 800-268-3284 and we would be happy to discuss your business’ credit protection needs.

The Four “C’s” of Credit

Extending Credit to your Customers.

With the end of summer approaching and businesses back in full swing gearing up for the important fall season, it’s a good time to discuss key best practices when it comes to establishing credit to your customers.

As we all have experienced, credit has become a very large part of today’s business climate. As payment transactions rarely are conducted in cash, companies now extend credit to their customers as a normal part of doing business today. However this may also put them at greater financial risk if their customers are not able to pay their bills.

What factors should you consider when assessing your customers? When deciding whether or not to extend credit to a customer, you will need to determine whether the business is able and willing to repay their debt. Is the business a good risk? In other words, is it creditworthy? Creditworthiness is based on a number of factors often referred to as the Four “C’s” of Credit – Character, Capacity, Capital and Conditions. These provide a practical approach for businesses to assess the financial risks involved.

The Four “C’s” of Credit
Character (or Credit Reputation): Do your customers honor their financial commitments or do they delay payments to their benefit and at an additional cost to you? Other key factors to consider are how well they know their business and what is their reputation in the business community.

Capacity assesses the ability of the business to generate cash flow in order to pay their bills.

Capital refers to the capital assets of the business. Every business has assets, whether it is accounts receivable, product inventory, equipment etc.

Conditions refer to external influences that affect your customer’s business including market fluctuations, industry growth rate, economic considerations and currency rates.

As part of Veri-Cheque’s Accounts Receivable Protection Plan, our credit managers work with you to assess the credit risk of your customers.

We start by evaluating your existing customer base and setting up individualized pre-approved lines of credit for each of your customers. The lines of credit we establish for each of your customers are based on both their activity with you and their overall credit worthiness.

For new accounts, there is no need for you to complete credit evaluations and analysis. Simply have your prospective customer complete a credit application and fax it to us. We will respond with an evaluation and approval within 24 hours, in the majority of cases.

To assist in evaluating new customers, we refer to our Restriction List, an extensive database of problematic companies and individuals that has been developed in conjunction with over 3,000 of our clients Canada-wide since 1978. This proprietary list is exclusively used by Veri-Cheque for the benefit of our customers.

To discuss your customer credit concerns, please call Veri-Cheque at 800-268-3284 and we will be happy to provide you with more information about the services we provide to protect your business against late payments and bankruptcy

Economic Recovery in Canada and the US Stalling

Recovery from the recession is slowing quickly in North America based on the recent employment figures released last week. Statistics Canada reported that the unemployment rate edged back up to 8 per cent and is the first decline in jobs this year.

While the Canadian economy is in much better shape than our neighbour to the south, the effect of the sagging U.S. economy recovering from its worst downturn since the 1930s threatens to spill over into Canada. The U.S. economy has been losing steam for two straight quarters and that raises concerns about whether it will fizzle out or even turn into a “double-dip” recession. Economists predict it may take the American economy a decade or more to recover the 8.4 million jobs that were lost in the downturn. U.S. jobs losses reported last week point to a recovery that is stalling and, in turn, raises fears over the potential impact on Canada’s economy. According to Export Development Canada, until the U.S. economy improves, there is cause for worry for Canadian companies exporting to the U.S.

Although the Canadian economy is expected to lose steam later this year, a recent report by the Conference Board of Canada predicts Canada’s will dodge the dreaded ‘double dip’ recession. We will most likely see more pressure by the provinces to extend the government’s stimulus spending program that has helped us weather the recession.

In the U.S., there are fears growth will slow even more in the second half of this year as high unemployment there will hold back consumer spending, which accounts for 70 per cent of the U.S. economy. The impact of the U.S. government’s massive stimulus programs is winding down and with unemployment rates near double digits, there will be more pressure to pass more stimulus measures to speed the recovery.

However President Obama’s sagging popularity will certainly hurt the Democratic Party’s chances of keeping control of Congress in this fall’s mid-term elections. The Republicans are expected to block any additional spending because of their concerns about the size of the deficit.

Based on these recent reports, let’s hope the stall this summer is temporary and a better-than-forecast economic picture emerges this fall. Otherwise, when we head into the busiest retail period of the year, we may have some business challenges facing our economy.

While it may seen good management practice to restrict or turn away business because you’re not comfortable extending higher credit limit in this present business environment to some of your customers for fear of suffering a loss if your customer is unable to pay.

Veri-Cheque’s Account Receivables Protection Plan is a defensive strategy for companies to stay solvent and even prosper in these uncertain economic times. Veri-Cheque has been serving clients across North America as a leading financial protection company since 1978. We provide credit guarantees and cheque guarantees for companies in all industries.

In the same way you invest in fire insurance to protect your buildings and offices, investing in credit insurance for your accounts receivables offers peace-of-mind protection for your company’s largest asset. By insuring your account receivables, you become more competitive and are able to grow your sales, while reducing or eliminating your risk.

We invite you to call us at 1(800) 268-3284.