Save 3% but You won’t Get Paid For Months

Living here in Dubai, COVID accomplished one significant advancement in the local economy.

Most businesses are now fully online and take payments by credit card and various payment methods. This wasn’t the case before 2020 where besides F&Bs and Retail shops, many other places still insisted on cash or wire transfer payments.

Stripe hadn’t arrived yet, so payment processing was a chore and many businesses didn’t want to deal with the hassle. Other owners objected to payng nearly 3% of each transaction as a merchant charge.

It’s the latter I want to discuss today with a case study.

A client came to me in the logistics industry. As we dove into his business model, two figures stood out to me. Accounts Receivable days (how many days on average to get paid) and Bad debt (invoices that were never paid).

This client was suffering from customer payment delays or defaults and although profitable, the owner was stressing monthy about cash flow. Like a gymnast, he was doing fiscal acrobatics to get money in the right accounts at the right time while waiting and pushing his customers to pay him.

Now this client wasn’t sloppy. He was invoicing on time and had a dedicated team to chase up the invoices. The problem were his payment terms.

Deposit up front and periodic payments. But payments could only be made by cash and wire transfer. No credit cards.

Now for smaller ticket items, it was no big deal, but as he was selling a good portion to consumers who took big ticket items it was painfully obvious.

These customers were delaying payment because they running on credit lines and never had a big stash of cash sitting around to pay in lump sums. Often they purchased from my client and were waiting to get paid by their customers before they could pay my client.

It was unnecessary.

A purchase that should have been cleared in 30 days was taking 120 or even 180 days for the full payment to be made.

The customers weren’t deadbeats but were stuck in a tough situation and major cash outlays caused them to delay and extend payments.

The amounts were not worth the hassle of court and so the company renegotiated.

And although eventually they were paid, it meant months without the money they budgeted and staffed around.

In the next post we’ll see what they did to resolve the situation.

2023 – How’s your Cash?

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Click this link to discuss your company and situation. No sales pressure – just to see if there is a fit between us and if I can help you. If there isn’t one, I will do my best to point you to where you can get the answers and resources you need.