Continuing our cash velocity discussion started on March 16, 2007
Yesterday we discussed how offering a discount can reduce cash to cash cycle time and today we will discuss an alternative.
Another approach, which leads to similar results is receivables factoring. Factoring receivables, however, takes about a month to set up in order to provide all the necessary information. They charge based on how long it takes your customers to pay. This is typically in the range of 1 to 5% which is a much better deal than the 20% discount. However they typically pay you 80% of the invoice within 2 days but hold 20% of the funds back until your customer has paid. We usually start with the discount offer then switch to factoring once we can get it set up.
In addition to the above ideas, with DBR Scheduling we can also give preference to customers who pay quickly. Customers who pay quickly are certainly better, as demonstrated above, to our cash-to-cash cycle time.
The shorter lead-times that result from implementing DBR can also allow us to offer shorter lead-times for higher prices depending on our industry. This would be determined during your mafia offer development.
… to be continued …
Here’s to maximizing YOUR profits!
“Dr Lisa” Lang
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