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Update: The Australian and New Zealand operations of Bibby Financial Services were acquired by Scottish Pacific Business Finance in late 2015 to create Australia’s largest non-bank invoice finance specialist. Welcome to our website.

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The Real Cost of Late Payment

The Real Cost of Late Payment

The latest figures supplied by Dun and Bradstreet indicate that there is a continuing trend of businesses taking longer to pay their bills, and the largest businesses take the longest time to pay.

The first quarter of 2013 saw the average days taken to settle outstanding invoices drift from 52 to 55 days on average, and in the case of the largest businesses (over 500 employees) the drift has been from 55 days to 58 days.

At first sight it might not seem like such a big deal, but there are serious cash flow and cost implications, particularly for high turnover, low margin businesses. For every $10M of annual turnover a 3 day drift in days outstanding takes $82,000 out of working capital and if that hole has to be filled by increased borrowings, at 10%, there’s a cost of $8.2K in additional interest.

Getting paid on time is a challenge, but businesses can help themselves. At Scottish Pacific we stress on our clients the importance of having their paperwork in order. The correct details including the payment terms on their invoice, quoting the correct purchase order numbers, ensuring that the detail such as number of units and price per unit is accurate etc. It’s also important to issue invoices and statements in a timely manner and to have an effective collections programme in place.

By way of comparison the average days outstanding across the Scottish Pacific client base in Australia at the end of the March quarter was 47 days, a difference of 8 days against the national average, which equates to a positive working capital variance of $217K per $10M of annual turnover.

So, to summarise, days outstanding is more than just a statistic. It has significant cash and cost implications. The lower the better and it can be influenced.

To find out more about how Scottish Pacific can help your business, please visit our services page.

Keeping the Cash Flowing

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