Let’s look at a typical situation if you are a service company:
Let’s assume you complete a project worth $100,000
Your profit margin on this project is 10%.
If paid promptly, you have the potential to make $10,000.
Instead, your customer takes 90 days to pay you!
You carry that $100,000 on an LOC for 3 months at 9.2% interest.
Ignoring compounding, you lose 0.77% per month.
The interest after 3 months is $2,300.Over 20% of your profit gone. – POOF!
For oil and gas service companies the cost of doing business is rapidly increasing. Inflation is driving up the cost of labour, equipment, and materials. Interest rates are at a 20 year high. Many businesses utilize a line of credit (LOC) to finance operating expenses such as payroll while waiting to be paid. Even if you run off cash on hand, there is still a cost. That money could be collecting you interest instead of funding your slow paying customers.
The solution – optimize your customers.
Replace the slow pay customers with ones that pay promptly. A good bookkeeper can tell you who your slow payers are based on a monthly aging AR report. They can then compare that to PayScore.ca to determine if the slow pay issue is isolated or if that customer has an industry reputation of slow pay. Armed with that information you can then decide if you want to continue doing business with these slow paying customers or, find new customers that consistently pay on time.
Where do you find prompt paying customers? Assessing companies’ standings in PayScore.ca the bookkeeper can provide insight to your salespeople on which companies are viable prospects. By shortlisting customers based on payment reputation you can reduce time and effort wasted by salespeople courting less favourable customers.
Assessing your slow paying customers with a good bookkeeper and a powerful tool like PayScore.ca, will help you quickly optimize your efforts and recoup that 20% that is silently slipping through your hands.
Capturing that lost profit is equivalent to expanding your business 20%, without adding staff or equipment!
If you are looking for a bookkeeper, we recommend you start with:
Deborah Stephenson, CPB
Fractional EA Services Co.
(780) 221-7572
info@thefractionaleaservicesco.ca
Sabina Herdman, CPA, CMA
Manage My Books Inc.
(403) 542-5120
info@managemybooks.ca
For more information on PayScore.ca visit www.payscore.ca or call (403) 396-2950.
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