Calculating the costs when an invoice is paid past it’s due date, and how to deal with customers.

DSO

Every day that an invoice isn’t paid it costs money. Sometimes this money is hundreds or even thousands of euro’s each month. Olav de Lange knows how you are able to gain an insight, and how to get the customer to pay in a proper contact.

It is tedious when customers don’t pay their bills. As an entrepreneur you would like to focus on other tasks. Invoices that get paid past their due date costs a lot of money. In addition the invoice, collection costs and costs for a lawsuit also need to be taken into account. According to the council for Judiciay, more than a million lawsuits are filed each year over outstanding invoices.

Redundancy in paying rent 
There are lesser known reasons why an unpaid invoice costs the entrepreneur money. Money that isn’t in your account means you cant pay your suppliers. But there is more: without work capital you are not able to grow your company or grow at a slower pace. For instance if you have to go to the bank to get a loan you will have to pay rent over the amount that was borrowed.   A lot of entrepreneurs have to deal with customers that pay invoices too late or not even at all. “Most entrepreneurs that I speak to write off claims on a regular basis. Most entrepreneurs don’t know exactly how much money they are missing out on. From my own experience I know that this amounts to a few hundred to thousands of euros each month.” It is not for nothing that companies that don’t pay their bills on time are costing the Dutch companies billions of euros annually.  
This is how you calculate how much a claim costs 
How much does a claim cost you as an entrepreneur? To start you need to calculate the so called Days Sales Outstanding, also known as DSO. The DSO is the average amount of days that an invoice is unpaid. The DSO can be calculated by dividing the outstanding amount by your yearly revenue, then multiply this with 365 (amount of days). For instance: If you have 425.000,00 euro’s worth of outstanding invoices and you have a revenue of 4.000.000,00 euros your DSO is 39 days.   Outstanding invoicesRevenue×365=DSOOutstanding invoicesRevenue×365=DSO   “If invoices remain unpaid for a long time and you are doing everything you can to get the customer to pay faster it would be helpful to focus your efforts on debtor management.  
Stop losing money 

Utilising debtor management efficiently can help mitigate your losses. “The first step is gaining an insight. Debtor management offers a very useful insight into your customers. You can use this tool to gain an overview to see how much profit you could gain by optimising your cashflow” said by De Lange. Recently De Lange did this for a company that has a yearly revenue of two million euros. “They had an outstanding invoice amount of 400 thousand euros. This means a DSO of 72 days. This entrepreneur has loans at the bank with a rent of six percent. This means that pre-financing was costing the entrepreneur is company yearly 24 thousand euros. That is 333 euros to pay the rent each day!”

Within 6 months your money earned back
percent. This meant that the company loses 4800 euros worth of rent each year. The lowering of the DSO by 20 days based on 400 thousand euros of outstanding invoices increases the cashflow with 80 thousand euros.   The investment in creditmanagement software from CreditDevice is earned back on average within 6 months. “Every day that an invoice remains unpaid costs money. Thus every day that this period is shorter increases profits. We can have a meeting together and analyse your data to optimise your cashflow.” 
Would you no longer like to lose money? 
Please feel free to contact Olav de Lange.  
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Olav de Lange

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