Aging of Accounts Receivable May 27, 2016SCORE Chapter 23: Rochester1.

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Presentation transcript:

Aging of Accounts Receivable May 27, 2016SCORE Chapter 23: Rochester1

2 Learning Objectives: Objectives: To understand the Cash Flow impact of extended Accounts Receivable To determine the Impact on Quick Ratio May 27, 2016SCORE Chapter 23: Rochester

3 Why Do You Have A/R? You’re extending credit to an unknown customer New startups are usually not part of a credit reporting system Eagerness to get the first 1-2 orders Beware!! These may come from customers who can’t get credit elsewhere!! May 27, 2016SCORE Chapter 23: Rochester

4 Aging Categories: 1-30: Current 31-60: Past Due 61-90: Delinquent 91+: Send to collections 120+: Send to attorneys May 27, 2016SCORE Chapter 23: Rochester

Why Do You Want to Offer Credit? Credit qualification Bank reference Square Corporate/business credit card Are you willing to “lend” this client thousands of dollars without verifying credit worthiness? May 27, 2016SCORE Chapter 23: Rochester5

6 How Can You Accelerate Payment: 30-50% downpayment to cover COGS Progress payments for Raw Materials, Delivery, & Final Installation. Get 2-3 credit references. Get 90% on delivery; 10% on “punch list” Get Periodic Sign-offs to ensure customer acceptance May 27, 2016SCORE Chapter 23: Rochester

7 Collection Agencies: 20-35% of money collected There goes any profit you had in the job! May 27, 2016SCORE Chapter 23: Rochester

8 Attorneys: Takes 1-4 years to get to court Summons & Complaint Discovery Court date Arbitration Settlement Legal fees [No guarantee you’ll ever see your money] May 27, 2016SCORE Chapter 23: Rochester

9 Aging: 1-30: Compare to A/P 31-60: Overdue. Impact on A/P 61-90: Cash Flow Impact / Short-fall : Not going to happen >120: Lost or 1-3 years to collect a fraction. May 27, 2016SCORE Chapter 23: Rochester

Application: Consulting Engineering Project Management Website design services Video game design Not retail May 27, 2016SCORE Chapter 23: Rochester10

Caution: Eagerness to get 1 st contract Investment of Raw Materials & Direct Labor Rent, insurance, utilities, delivery, etc. = No payment = Cash Deficit May 27, 2016SCORE Chapter 23: Rochester11