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Your Business Has Cash Flow Problems : We Know Why And By The Way..
OVERVIEW – Information on working capital and cash flow financing solutions in Canada. Knowing how to both calculate and address business finance funding needs is key to long term financial success and health for your company
The method by which the largest corporations in the world, and a small company measure collection activity, is called DSO, or 'Collection Period'. DSO stands for DAILY SALES OUTSTANDING.
Business owners can calculate this number very quickly, and we recommend it be done regularly, typically monthly, quarterly, and certainly annually. It's a great business measurement of your success, and lenders also focus in on this number also.
How is the DSO calculated? It's an easy calculation, as follows:
Accounts receivable / average daily credit sales
The answer is expressed in days - e.g. 'Our DSO is 40 days’
Again, we emphasize this is the traditional measure of success in monitoring a company's investment in accounts receivable. In our above example we said the DSO number was 40 days.
So what? Is that good or bad? Well, we benchmark against our selling terms. A great portion of industry revolves around payment terms to customers of 30 days. (We can hear most business owners saying 'I wish..."!) If our customers, on average are paying us in 40 days, and our terms are 30 days, you can see there is a ten day additional carrying of accounts receivable.
So the bottom line is that the longer the DSO the more focus management has to pay on account receivable collections. Business owners know all too well bills and employees are paid with cash, not profit!
In most businesses as sales go up many financial controls go down. That's unfortunate of course, but the fact is that many firms that have explosive sales growth tend to de-focus on DSO, as that measure is masked by sales growth and profit. Management and sales personnel are often favoring loosening credit standards to meet revenue and profit goals.
We point out that the DSO calculation is a reflection of one point in time - that's why it is important to monitor the overall trend of DSO on a longer term basis. Naturally all good businesses age their receivables, so they know how old they are and focus on past due accounts. When a company selling on 30 day terms has a significant investment in 60 and 90 day receivables we can very accurately predict that DSO quality is declining.
Naturally in difficult and recessionary times everyone is holding onto cash longer, and only management can focus on specific actions such as improving collections.
Numerous ' external' solutions are available to your company to fund cash flow needs - They include;
Inventory Finance
Non bank asset based lines of revolving credit
Bank credit lines
Tax Credit Financing
PO Finance
Bottom line? Focus on DSO improves working capital and overall business cash flow - so it's a valuable asset in any owners 'financial toolkit 'to working capital improvement.
7 Park Avenue Financial :
Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .
7 Park Avenue Financial
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Office = 905 829 2653
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.
Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.
Stan Prokop
