Controlling debtor days outstanding (DSO) is critical and should be part of an overall strategy which provides greater flexibility.
This article (Cashflow crisis survival guide: How to get your customers to pay on) on the StartupSmart website talks about why business confidence is in the pits. According to the latest Dun & Bradstreet data, businesses are now waiting 54 days to be paid, which is up from the 53 days they waited during 2011 and 2012.
The article is very relevant to many businesses however a successful cash flow/working capital strategy also needs to be employed. In many cases changing the mix of working capital funding in conjunction with an improved collections strategy is very important to support growth and greater profitability.
Many small and medium sized businesses are hamstrung by restrictive secured overdrafts which result in greater stress when the hard-core component of overdraft funding is combined with a stretching of Debtor payments.
A well-structured Debtor Finance facility is an excellent option which should be considered in lieu of a traditional overdraft. The main attractions of this strategy are:
- The facility normally provides funding of up to 80% against outstanding debtors.
- It is not restricted by Bricks and Mortar security.
- It operates as a line of credit against outstanding debtors.
- Creates the opportunity to avail of Supplier Discounts
- Reduces the reliance on Debtor Discounts
By structuring facilities which are able to maximise available security for longer term debt and freeing up cash flow many companies benefit through employing a well-defined Debtor Collection strategy coupled with more flexible working capital structure.