Leveraging your line of credit
One of the biggest challenges I have often run into with field service companies is managing the gap between incurring the costs to perform the work and actually recouping the costs (when you get paid). With many small businesses, this is managed with a line of credit. Obviously, that line of credit isn’t free, but it makes it possible for you to survive. IF a customer is slow to pay any invoices, it puts a strain on that line of credit and can leave you stressing about the cash flow.
We also run into those “good” problems of gaining more customers and more work. The good in that is obviously that you are bringing in more revenue. The problem part of that is watching that line of credit increase along with your receivables. It keeps you in business but increases your risks, as well.
Accounting for ALL billables
In a previous article, I wrote about streamlining operations to work efficiently and effectively. Even with gains recognized from streamlining your work, you can still see losses if you aren’t recording all of your billables…your time and materials. Remember, using a process to do this will be the most reliable. It must be easy for your teams to record that information. That means they need to capture their time and materials consistently early and often.
So, how to do that early and often…
Leveraging technology in the field can help you do that to reduce receivables. We have so many tools available thanks to all the conveniences we have come to love from our mobile devices. There is a slew of software companies that specialize in mobile workforce apps. It’s important to find a solution where the app molds to your operations. Don’t let a salesman steer you towards molding your operations to fit their app.
Turning work into invoices (quickly)
When it gets busy, it gets hard to push out the increased number of invoices to your customers in the same amount of time as before. Obviously, adding more staff can help that, but that means more overhead. When you start getting a backlog of service tickets that you need to invoice, it has an immediate negative impact on your balancing act between your direct costs and your revenue, which is often covered by your line of credit.
Rather than simply adding more people to the workforce, use some tools that allow you to quickly batch your field service tickets to invoices in minutes compared to hours. When you leverage tools like that, it not only allows you to work through the process faster, but it also turns your work into receivables sooner.
Make it easy to get paid
Your customers want it to be easy to pay you. More often than not, if you make it easier for them, they will pay you faster. Some of your larger customers might already have online invoice approval and processing tools, and you should be taking advantage of those. Even with those tools, though, vendors often have several steps they must go through before they can submit their invoice to the customer’s portal. If you have to get your field tickets or invoices signed by the field manager prior to submittal, then you probably already know the amount of extra time that adds to your window.
This is where your own customer portal can drastically make it easier and faster to get those ticket or invoice approvals to and from your customers. Consider how long it takes from the time you compile the tickets with the invoice to the time you get the signed ticket back in your office. This alone can add days or weeks to your invoicing cycle and hinder your goal to reduce receivables. Then consider that a customer portal where that field manager can sign the invoice online can take that portion down to a single day.
Keeping track with simple reporting
Remember the old adage, you can’t manage what you can’t measure? Easy-to-use reporting tools are an essential part of tracking and managing your receivables. This, too, falls under the schedule of ‘early and often’. Simple reporting doesn’t necessarily mean few columns of data. It means you can easily run an updated report anytime needed without having to manually update a list when you need to recalculate.
When you leverage technology in your operations to reduce receivables, all the needed information can be housed together so a simple report can be run at any time. If you are updating spreadsheets manually and combining information from different reports, chances are, reports can be built to pull that information easily and often.
What it’s worth
Reducing your receivables by cutting down the time it takes to get paid after the work is done can save some serious cash. Here’s how…Let’s take a revenue of $1.5M per month. If it takes you 45 days to get paid from the time you invoice, it isn’t hard to see you can have $2.25M in receivables at any given time. That could be closer to 60 days from the time that you actually incurred the cost of doing the work. If you can cut down your invoicing cycle so you invoice almost immediately after the work, and can get paid around 30 days from the time the work was done you can pick up around $1.5M in cash within just a few months. Now, consider your savings on the monthly interest of $1.5M if you applied all that to your line of credit.
That’s what it’s worth.
Coreon Group is here to provide expertise and resources to help business operations work more efficiently by reducing overhead and direct costs for higher profit margins. Contact us today to learn more about how we deploy solutions to help businesses with work management and operations and reduce receivables in the process.