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Staying On Top Of Late Payers
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David Renard, president of Renard Paper Co., in St. Louis, has noticed a lag in on-time payments as a result of the economic downturn.
“Lately, with the recession, we’ve seen a slight increase in days outstanding overall compared to pre-2007 and 2008,” he says.
A year ago, Renard switched distribution software systems, which has allowed the company to better track its accounts receivables and determine who the late payers and non-payers are.
“We felt we needed to get more control of our business,” says Renard. “We run all our internal financial reports now, whereas before we had it done by an outside accounting firm. We do all our own income statements and balance sheets in-house and have a bit more of a grasp on financial conditions day- to-day using the new software.”
Distributors like Renard are implementing financial management software or upgrading existing systems to gain a clearer understanding of their financial situation. This software grants access to real-time information that can help them make more informed business decisions and stay on top of late payers. The software also records and processes accounting transactions in modules such as accounts payable, accounts receivable, payroll and general ledger.
Expediting PaymentsOne of the most important software modules for handling late payers is accounts receivable, which enables distributors to monitor and follow up on overdue invoices with instant, real-time access to all transactions. In addition to keeping track of customers with open balances, users can apply payments, adjust invoices and perform audit trails.
Renard has seen an improvement in tracking problem payers and getting them to pay on time as a result of the software’s accounts receivable module.
“Our accounts receivables clerk is able to run daily reports,” he explains. “She might run a report on all customers that are past due 30 days, and then she’ll use that report to contact them and remind them to pay their bill.”
Brian Peters, president of Peters Supply in Elmira, N.Y., says that his company recently started using its financial management software to address late payments. Prior to implementation, the company was “just trying to get the basic functionality out of the software,” Peters says, which included order entry, purchase orders, sending out bills and paying invoices.
For receivables, the company’s software offers the ability to set call schedules and have notifications sent to the credit manager to let them know it’s time to make a call to somebody to collect money or determine if they’ve sent a check.
“We get a pop-up email that says ‘it’s time to call customer ‘X,’ they’re overdue,’” says Peters. “When you call that customer they may say they never got a copy of that invoice. Right then and there, you can click on the screen, pull up the invoice and e-mail it to them. The software will log everything and keep track of the conversation so you know next time you call them you already sent them the invoice. It’s really a robust tool to make sure your cash flow is sufficient.”
Peters advises distributors to make sure their software has an effective credit management tool that can help them set up their customers’ credit status to determine if their credit is healthy or if they need to be placed under a watchful eye.
“At the end of the day, it doesn’t matter how big the profit was on the sale if you never get paid,” he says.
Customer ProfitabilitySince implementing financial management software, Peters Supply has acted more responsibly when it comes to credit management issues.
“We’ve got a much better picture of who our best customers are,” he says. “Before, our gauge of great customers was based on profit amount and order size. But now we’re able to add how quickly they pay and how well they respond if they fall behind.”
Peters credits the software with improving the company’s cash flow exponentially. He has seen vast improvements in the speed of payments, which he attributes to the software’s ability to generate overdue payment reports as well as document all transactions.
“If you only ran that report once a month and didn’t have a good tool to document the previous conversations, you could very well start off each call with that same conversation every time, which wouldn’t be effective,” he notes. “But now, we have a trail that enables us to say ‘I called you once before, and you said you were going to send payment. The payment hasn’t been received.’ Now we need to have more difficult discussions about potential credit holds or collections.”
San Diego-based WAXIE Sanitary Supply is also using a recently installed financial management software program to run detailed customer analyses and generate management reports that help the company determine how profitable a customer can be.
“We break down our variable costs and fixed costs and analyze our customers on a division by division basis,” says Sheldon Derizen, the company’s CFO. “We can take a look at their history for six months or a year, or look at the products we sell them and take a look at the gross margin on all products for a specific customer.”
Having powerful software to manage accounts receivables, accounts payables and inventory is a must for every business, says Denizen. To help distributors make the most of financial management software — or choose the appropriate software for their business — he suggests networking with other distributors.
“The best way to find out what works is to talk to people in the same business,” says Denizen. “I’ve seen a lot of companies that didn’t have good financial software, and it cost them their business. Ninety percent of business failures can be attributed to inadequate financial information or inadequate funds.”
Kassandra Kania is a freelance writer based in Charlotte, N.C. She is a frequent contributor to Sanitary Maintenance.