Not only small businesses, but ones as big as Apple also recognize that Receivables are the Biggest Business Risk.
Even so, the risk associated with trade receivables is not something that cannot be ignored by a business. As explained in the previous explanation, bad or delayed receivables can cause lost rental payments or lost salaries.
Don’t be tempted to think that you can make sales through credit risk. Even though it is a very large business, the Apple company is required to include “risk factors” in its annual report each to inform investors about the risks that could adversely affect the company.
Of all the “risk factors” that can affect global technology giants such as Apple, for example, macroeconomic conditions, rapid technological changes, adequate supply of components, and so on. And did you know? Apple listed Accounts Receivable as one of the 27 top risk factors in its latest annual report.
When describing receivable risk factors, Apple points out that it depends on retailers and distributors to generate revenue, ie retailers and distributors buy from Apple on credit. How much does the credit cost? The same annual report mentioned above reported more than the US $ 15 billion in Apple’s receivables in 2016.
Debt Customers, What Should You Do?
Initial payment, and pre-paid packages, to offer discounts on all invoices if the customer pays in advance or within a certain number of days.
The initial payment discount structure will generally look like “2% 10, net 45.” What does this mean for customers? The code means, the customer must pay the maximum payment of 45 days, and your company will give a 2% discount when the customer makes the maximum payment on the tenth day after the invoice is sent.
That way, you can get the maximum profit, starting from increasing the opportunity to be paid in a more timely manner or customers can afford to pay within 10 days for a discount.
A general incentive that you can provide is the option to pay a monthly installment worth one year in advance. This incentive model is very common in ongoing service industries such as insurance, and the Saas industry such as accounting software, HR software, and tax applications.
Biggest Business Risk Terms & Clarity for Customers
It’s a good idea to inform customers about the incentives that customers will receive when making payments on time. You can write it clearly into the contract, so customers will be bound by the terms of payment that you want.
This will make customers feel that your business is more transparent and open. Making it easier for you when you want to collect receivables. Also include payment procedures in your contract, purchase order, supplier and invoice. Provide as much clear and clear information as possible in a reasonable manner. Discuss the requirements in person or by telephone before you start work. Everyone must understand how much is to be paid and when it will be paid.
Also, make sure you talk to the person responsible for the payment. Then, handle late payments before they occur and explain the conditions if late payments or billing will occur. Communicate this issue clearly and make it legally binding by including it all in a business contract or agreement.
Cover Receivables with Short Term Funding
How do you manage the gap between the working capital needed that must be met with the sale of goods and services, as well as the collection of delayed payments through a trade receivables strategy? Of course, there are several options, one of which is by extending credit lines guaranteed to banks by the amount and maturity of receivables.
Many businesses remain debt-free long-term only by funding short-term working capital with credit facilities and then paying when receivables are collected. Over time, businesses can build a credit reputation that allows for greater financing approval if greater capital investment is needed. Flexible payment options can also help you raise funds early.
Nowadays there are many P2P Lending fintechs that can help you to get enough funds with only an invoice. So, when you need capital, you only need to guarantee invoices that have not been paid by customers and you can get additional funds from it.
However, also make sure that you are able to pay off the loan. Do not create a Biggest Business Risk then you need to.