Like many other entrepreneurs, farriers often fail to recognize how their bottom line is penalized when clients fail to pay on time. You can improve your bottom line through greater attention on faster collecting for your hoof-care services
Let’s say Joe Farrier has annual billings of $90,000, of which 60% ($54,000) is invoiced (not collected upon completion of the work). On average, his clients pay their invoices in 6 weeks’ time — a dangerous habit he’s allowed as studies show that as accounts receivables grow, the likelihood of collections falls considerably. (See the “Hot Off The Anvil” chart below.)
He pays much of his operating costs on a credit card that charges him 16% for balances not paid within the 30-day grace period. To determine the savings he could see if he was able to narrow the footcare customer payment gap from 6 weeks to 3 weeks, the following formula is put to work:
Annual savings = Credit sales ($54,000) x annual interest rate (16%) x average days collection is lowered (18 days) / 365 days = $426
By collecting on his practice’s accounts receivable 18 days faster, Joe Farrier will immediately save his business $426 per year. Plus, this illustration does not take into consideration the opportunity for him to use the money earlier, for personal life, supply purchases, investing, etc.