While reading a Forbes article on product pricing, I thought about a mistake companies make when pricing their products - they forget to add in the cost of extending open credit terms.
If you're allowing your customer to pay for your products on terms and they're not paying on time, it could be significantly impacting your bottom line.
If you need to borrow to make payroll and cover other operating costs, you should be incorporating the interest cost into your product pricing. Money tied up in accounts receivable increases your borrowing costs which ignored will reduce your margins and your cash flow.
In an earlier posting about working capital, I pointed you to a free DSO calculator to help you calculate the cost of your accounts receivable. If you're re-evaluating your pricing for 2007, it may be worth another look!
And if your accounts receivable are piling up and exhausting your cash flow, read "Matchmaking for Business Loans" and give me a call.
Related Tags: Forbes, accounts receivable, working capital, cash flow, DSO, Show Me the Money
No comments:
Post a Comment