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Long Collection Cycles Increase Costs and Reduce Margins. Can You Afford it?

Published on 2 min read

Multiple touchpoints create extra steps in your invoice-to-cash cycle. The more steps you have, the longer it takes to get paid and the higher your operational costs to serve customers.

The average payment cycle for wholesale distributors is 37 days.

If you want to shorten your payment cycles and free up your cash flow, take a hard look at your invoice-to-cash process. The more steps that you have in this process, the more friction you will create and the longer it will take to get paid.

"48.8 percent of the B2B invoices in America are overdue."
– Atradius

Late payments often stem from friction in the invoicing process. It’s not that business owners don’t want to pay on time – it’s that, due to the nature of their business, it can be difficult for them to pay. If a contractor is on the road most of the time, they may only be able to write checks once a month. If an invoice is due before they have a chance to process their monthly checks, their payment will be late. If these road warriors could pay you with a couple of swipes on their mobile device, they would submit payments faster.

When asked why a payment is late, claiming non-receipt of an invoice is a commonly cited reason among business customers. For example, a physical invoice that is sent with a shipment may sit on a loading dock and never make it to AP. Eventually, the customer will be in contact to ask about the invoice and its supporting documentation, such as its bill of lading (BoL) or proof of delivery (POD). Then, the customer either needs to search the warehouse or filter through emails to find the documents. These hassles frustrate customers and lengthen your DSO.

Whatever the cause, late payments increase your operations costs, eat into your profit margins, and put a huge strain on your resources. And because sales reps and account managers often get involved with collections to “pay to get paid,” the time that your team spends on collections will impact your future sales. Many sales reps need to follow up on late payments, as their commissions or bonuses depend upon the product being paid in full. However, the additional touch points take time away from what sales reps do best – selling.

Reducing your late payments not only frees up your cash flow but allows your staff to focus on what matters.

If you don’t optimize your AR processes and minimize the steps that customers must take to pay an invoice, you will struggle. Customers who want more convenient payment options will simply go to Amazon.

To learn more about the challenges preventing Wholesale Distributors from achieving financial goals, grab a copy of our ebook.

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