Capitalise has a long working capital gap between generating a lead, progressing the funding search and finally getting paid our commission. We are always working to improve the difference between paying our creditors and being paid by our debtors. Have you done all that you can to close that gap?
Initially, you choose your suppliers based on your specific need, whether it's speed of delivery, quality of product or simply price. Payment terms are usually the last thing on your mind when selecting suppliers.
If you've developed a good relationship with your suppliers, you should be able to negotiate better payment terms. In doing so, you more closely match when you will be paid by your clients with your supplier terms.
If you were to use invoice finance, you would pay around 2% of the invoice for the first 30 days, with 3.5% for 60 days. This discount could be offered to your clients for payment upfront versus delivery.
Businesses early in the lifecycle often are flexible on their payment terms but over time, this can lead to headaches with working capital as your supplier/client payment terms stretch. A business we worked with started to apply new, shorter payment terms to all new clients they onboarded. When they gained the confidence that it wasn't an issue they revisited their old clients and changed the terms. They managed to shave an average 17 days off their client payment terms.
The advent of cloud accounting, such as Xero and Geniac, has meant that there are a number of solutions now that enable you to automate timely reminders - perhaps a reminder of the impending invoice after 7 days, 14 days and ultimately at 21 days. The single largest reason for a late paid invoice is "I haven't received it."
Automated credit chasers are helpful but nothing beats credit control. If you only have a part-time bookkeeper, you may find that your debtor days are lengthy because of this under investment. External credit control is confidential and yields really quick results - you'll get reduced debtor days in as little as four weeks. Please contact us at firstname.lastname@example.org for help.
To reduce the need of working capital, becoming more efficient in the purchasing/sales cycle will be key. There are a lot of methodologies to explore. If you are a trader, you may be able to hold less stock. If you are a manufacturer, you may be able to hold fewer components. The Japanese car manufacturers were the trendsetter for 'just in time' techniques, i.e., shortening the manufacturing cycle, etc., reducing the period you hold stock for and thus reducing working capital need. Many smaller businesses closer to our world have adopted similar approaches.
The above is often not easy to implement - but they are worthwhile. If challenges remain, often there is a working capital requirement and where there is, Capitalise.com can help. Trade finance and invoice finance are great products for filling this creditor/debtor gap.