Earlier this year a Dunn & Bradstreet (D&B) trade payment report highlighted some interesting facts;
The D&B report suggests that the slow payers are getting better but that’s little consolation if you are relying on customer remittances to meet your own working capital commitments. People talk about the domino effect that exists within payment circles i.e. if Jim is slow to pay Fred then Fred is slow to pay Wendy and then Wendy is slow to pay Marty and so on.
The smart business operator knows that by improving liquidity and by having positive cash flows (i.e. more money coming into the business than going out) they can utilise the improved working capital to invest in more stock to ultimately sell, or alternatively, obtain better cost prices from suppliers by offing cash payment terms. The quicker you can convert your credit sales into cash the more profit you are likely to make.
How then do smart businesses still provide customers with credit terms yet obtain the benefit of a cash sale? The answer is simple, smart businesses factor their debtor invoices with CFF.
Why wait until the 20th of the month following to receive payment when you can typically get 80% of what’s owed to you immediately and obtain the 20% balance still owing once your customer makes payment.
CFF are proactive in ensuring payments are collected on time. We issue debtors with monthly statements highlighting the amounts due and answer all invoice related customer queries in a prompt and efficient manner. On your instruction, we can even prompt payment prior to the due date by phoning and requesting or reminding them of their up-coming payment obligation.
When payment is late our debtor admin team call the debtor concerned. The conversation is always polite and professional because experience tells us that a phone call is much more likely to result in payment being made promptly than other debtor follow-up practices including letters, emails and text messages.
Unfortunately, there will be instances where payment will not be made and the slow payer then becomes a defaulter or a bad debtor.
Anytime payment is not made on delivery of goods you bear the risk of not being paid. What you must do is ensure that you become a secured creditor in case your customer fails.
The PPSR (Personal Property Securities Register) is a publicly accessible register which provides a means of securing the buyer’s obligation to pay. In the old days, retention of title clauses had the same effect but under new legislation it does not work in the same way. You will need to get customers to agree to specific terms of sale.
Registration on the PPSR can be done online at minimal cost. We can provide assistance.
If done correctly you will become a secured creditor allowing you to be entitled to recover your goods or the proceeds thereof in the event of a customer’s insolvency (liquidation, receivership, bankruptcy). Furthermore, you will be offered greater protection from any voidable preference claim that may arise in your customer’s liquidation.
In summary, invoices are typically paid late. Factoring with CFF converts credit sales into cash sales and ensures a professional team is administering your debtors’ ledger. Speak to your accountant or talk to us to learn more about using the PPSR and registering your security interests over goods supplied on credit.