Way, way OT business question

[Llewellyn]

I'm interested in the views of business owners on here who provide credit arrangements for their customers about what you would consider to be a reasonable percentage of outstanding debts between 30 - 45 days, and over 45 days.

Of course in an ideal world a business would have 0% in both categories but there's obviously no way you can achieve that, so what realistic maximum percentage do you aim for in each column. I can find plenty of formulae to work out average days paid etc but nothing that gives me an idea of whether my expectations are realistic, or whether I should actually be pursuing our debtors even harder.

I hope it's OK to ask this question here, if not then Mods please delete it.

[veloduffer]

I am not a business owner but am a loan/credit officer. It really depends on the terms you initially set. Moreover you should factor in your cash flow needs. You don't want to use your bank lines because folks are not paying.

You do not want more than a small percentage ($ wise) to be 45 days. Once it hits that mark it it is going to become uncollectible.

You should reach out early (after 15 days) to remind folks. If it hits the 45-day mark, you should call and maybe work out an installment plan ( if the past due is sizable).

Your key is not to let it get near the point that cause you liquidity issues.

[Schmed]

Depends on your industry, I think.

Friend of mine has a large plumbing supply company. He said he's got a LOT of customers well past 60 days past due, many past 90. Customers can be mom-and-pop plumbers, landscapers, etc.

Our company is a business-to-business sales/service company, and we have <5% past 30 days, and zero past 60 days.

[mbrtool]

Yes, it really depends on your business. I'm in the tool and die/mold business and
99% of my sales is from a small group of customers. If the customer says he'll pay in 60/75 days and consistently pays in that time frame then I trust them just as much as the guy who pays in 28/32 days. It's the consistency that's key.

Ray

[MattTuck]

Yeah, it depends on your business/industry. I have to say, I'd be leery to give credit to mom & pop businesses. I'd rather they pay with a credit card and let the underwriting bank take the credit risk...

That said, the answer to your question depends on several factors like, what is the collection rate once a debt gets beyond 30 days, are the customers beyond 30 days repeat offenders, what is the cash flow situation of the business (or, what kind of loss can you absorb given your margins)...

Peter (Old Potato) said he got advice very early in his career, "pay attention to cashflow" that I think is great advice for any business owner. Inventory & Accounts Receivable are drains on cashflow.

[Tokeat]

I concur with Mtbr. You just have to get to know your clients. I personally only follow up 15 days after the 30/45 with new clients. I am in the professional services industry and few invoices go past 60 days unless there's been some turnover at the receiving end of the bill or it got lost in a pile of paper. Good luck!

[Coluber42]

I agree that it really depends on who your clients are. If they're large universities or government agencies, you might well have to accept that it's going to take a really, really long time to get paid and that's the cost of doing business with those institutions. I worked in a music shop for 12 years that dealt with a lot of universities; the bigger they were, the longer they took to pay and the more paperwork it took before they finally did.
It sucks if you're a small business with a small staff, but you can't really do anything about it.

[BobbyJones]

We're seeing a total shift where we're seeing client mandated terms of 60-90 days. Fortunately, they actually pay.

[Llewellyn]

Thanks for the replies. We're in the waste collection and disposal business, and deal with a lot of cafe's and restaurants. We had some internal upheaval back in May last year and our debtors over 30 & 45 days blew out to almost 60% of total outstandings :eek:. We've worked hard and got it down to a consistent 20% - 30% which is still higher than I would like but better than it used to be.

I'd love to get it down to between 10 and 20 per cent and was just curious about what other business owners regard as typical, or acceptable. We start chasing repeat offenders after about 21 days and everyone else at 30 days, and have a policy of not doing the next service if a client has an outstanding invoice (with some exceptions of course). This policy has worked pretty well for us.

[Llewellyn]

Yeah, it depends on your business/industry. I have to say, I'd be leery to give credit to mom & pop businesses. I'd rather they pay with a credit card and let the underwriting bank take the credit risk...

That said, the answer to your question depends on several factors like, what is the collection rate once a debt gets beyond 30 days, are the customers beyond 30 days repeat offenders, what is the cash flow situation of the business (or, what kind of loss can you absorb given your margins)...

Peter (Old Potato) said he got advice very early in his career, "pay attention to cashflow" that I think is great advice for any business owner. Inventory & Accounts Receivable are drains on cashflow.

Thanks Matt. We go after clients over 30 days fairly hard and have pretty good success at collecting, even if it takes a bit of time. I have also closed the accounts of repeat offenders that take up to 90 days or more. In my opinion there's no point in having a sale if you can't collect the money.

As for "pay attention to cashflow" - you bet. That's probably about the best bit of advice any business owner can get.

[Schmed]

"Trash collection business"?

Yea. I thought you guys had 100% payment within 30 days...... or my brotha is a gonna breaka you legs!

[Llewellyn]

Yea. I thought you guys had 100% payment within 30 days...... or my brotha is a gonna breaka you legs!

You might have something here :banana:

[SlackMan]

I use interest rate terms on late payments as a way to give incentive to pay on time. So, currently my interest charge is 1% per month on any billings > 30 days unpaid. This equates to 12% year (uncompounded), which is a pretty decent return.

[oldpotatoe]

Yeah, it depends on your business/industry. I have to say, I'd be leery to give credit to mom & pop businesses. I'd rather they pay with a credit card and let the underwriting bank take the credit risk...

That said, the answer to your question depends on several factors like, what is the collection rate once a debt gets beyond 30 days, are the customers beyond 30 days repeat offenders, what is the cash flow situation of the business (or, what kind of loss can you absorb given your margins)...

Peter (Old Potato) said he got advice very early in his career, "pay attention to cashflow" that I think is great advice for any business owner. Inventory & Accounts Receivable are drains on cashflow.

Way back when, the wife of one of my investors, a CPA, when I asked her what was most important, she said three things, "cash flow, cash flow, cash flow"...

I was lucky in that I used 'no delivery until payment', cash and carry. A few times an ordered whatever was not picked up but that was seldom and small $. Only one bike in 13 years, to date, returned even tho we always had a money back guarantee with new bikes..questions asked but not refused.

[WickedWheels]

My wife fixed that issue at her office by taking 2 credit cards from patients and a waiver. When someone goes past 30 days (assuming no ongoing insurance issues) she just runs the card. Accounts going to collections have become almost nonexistent.

[SpokeValley]

"Trash collection business"?

Yea. I thought you guys had 100% payment within 30 days...... or my brotha is a gonna breaka you legs!

Or you return their garbage :)