If you are looking at your bank account and wondering why your growing business never seems to have as much cash in the bank as you expect, the first place to look is your accounts receivable.
What you will probably find is that your clients are taking longer to pay than previously.
Whilst some of these slow payers might be in real trouble (the debt collection industry is forecasting strong growth in 2021 - 2022 as the impact of COVID-19 ripples through the economy), the reality is likely to be much more complicated.
In addition to containing some struggling businesses, your receivable list is likely to include a number of:
- Solid businesses (like yours) who are collecting more slowly and adjusting their payment schedule accordingly
- Rapidly growing businesses who are using your cash to help fund their growth
The first category (above) is self-explanatory. The second requires some explanation… because “growth” is a double-edged sword.
As business owners, we all want growth and understand that profit growth lags behind revenue growth. But the real impact of growth is on cash flow.
- In a product-based business, growing demand requires an increased investment in raw materials, manufacturing costs, inventory, distribution, logistics and administration. Increased costs that are incurred BEFORE the sale is made and the cash is collected.
- In a service-based business, growing demand requires an increased investment in wages, training, management and administration. And once again these cost increases are incurred BEFORE the sale is made and the cash is collected.
In both cases, one of the ways that growing businesses can fund their increased cost base (in advance of collecting from their clients) is to slow down payments to their suppliers.
So where does that leave you?
- You could implement more robust ongoing credit checks. This might help you identify struggling clients and reduce your exposure/ risk of long-term bad debts, but is unlikely to improve your cash flow in the short term.
- You could adopt a more aggressive debt collection process. Which is likely to help you collect some of your invoices faster, but might also push some of your clients to seek out a competitor with better trading terms.
- Or, you could delegate both of the above responsibilities to BizPay.
The BizPay Solution
BizPay provides an easy and affordable funding solution that will let you collect full payment of all your invoices within 24 hours; whilst enabling your clients to spread their payments over four easy monthly instalments
The total cost to you is 4% of the invoice value (a discount that most business owners would gladly offer to guarantee all invoices are paid on presentation). And that’s before you take into account the savings flowing from the lower cost of credit control and debt collection.
For more information on how BizPay can help you grow your business, fill in the further information form here.
Written by BizPay
BizPay is a seamless technology platform that solves cash flow challenges associated with paying business invoices. The company was founded to help businesses grow better by enabling them to use top suppliers and professional service providers. Frictionless, transparent and affordable, innovative payment products allow businesses: to split bills into 4 easy instalments and/or receive full invoice payment in 24 hours to grow their businesses without being constrained by cash flow.