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What are the best ways to generate cash from your accounts receivables?

Scout Young's Profile

Answers

Gary Honig
Title: President
Company: Creative Capital Associates Factoring Co..
LinkedIn Profile
(President, Creative Capital Associates Factoring Company) |

Best is relative to every business situation; the type of industry, the business model, profit margin, net terms of the sale.

Certainly one of the better choices is Invoice factoring. Receivables are essentially loans you are making to your customers. A factor purchases those loans (invoices) and makes an advance on them, wiring funds into your bank account basically the day the invoice goes live (the product or service has been accepted by the customer.)

Here are a few of the benefits;

1. The decision to fund is based on the creditworthiness of your customer, not the financial condition of your company.
2. The factor will help provide credit checks on new potential customers.
3. Funds can be used for any purpose.
4. A factoring account can be set up within a few days without too much paperwork.
5. Each advance is treated separately so you do not end up with a net liability on your balance sheet, meaning no loan you have to worry about paying off.

Unlike a bank, working with a factoring company is much more hands on. You will interact with the factor each time you submit an invoice to be funded. A good factor will work with you to provide a customized relationship without interfering with your or your customers daily operations.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Research potential factors. Make sure they are not only reputable but charge a fee that is not crippling to the business. Look at factors that are well-known in your industry.

Research and know the difference between recourse and non-recourse; as well as whether you are signing an agreement that requires 100% of invoices to go through the factor or you have the ability to cherry pick.

Make sure you negotiate (not only rate), but surcharges and fees. Look at the ACH/Wire fee in relation to the amount of money being wired each time and determine based on your cash flow how many times a week and the base amount that triggers the wire (i.e., why pay $40 for a wire, when the wire is only $10K, when you can wait a few days and receive a $60K wire).

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

Scout
I look at your question as one which should be discussed with your colleagues in Sales, Customer Service and Operations as a company wide topic:
The best way to generate cash from receivables includes:
1. Making sure you take orders you can fulfill and deliver when the customer wants
2. Making sure you bill them correctly and on time
3. Making sure you don't extend credit to bad risks

So, talk to your sales peers about pricing the correct way, setting relevant payment terms and managing customer expectations (aka don't feed a customer/prospect a pile of ****), and make sure your operations colleagues know what they need to do and they do it. Then you as CFO need to ensure your team bills the customer and tracks payments of customers.

Far too often customers fail to pay on time because their supplier does not do what they should do.

If you are finding that DSO is slipping, find out the root cause(s). If you remediate those, then sales, operations and finance will be able to get back on track with doing the right things to get paid on time.

Prevention is better than cure:)

Regards
Len

Jim Lenihan
Title: Strategic Leader
Company: TreasuryPros
(Strategic Leader, TreasuryPros) |

Collect Them. Ensure bonuses and/or commissions are paid on revenue that has been collected, not simply billed. "Revenue Is The Journey, Cash Is The Destination" ~ TreasuryProfs

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