Split costs and quantities from one work order to another work order in Sage 500 ERP. Very useful for reworking bad parts. Click Here To Watch Video
Determine which work orders to release to production based on your on-hand inventory quantities. This module prevents orders from being released that cannot be manufacturered; helps you prioritize work orders; and shows material shortages.
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Sub work orders automatically created when a work order is generated for a top-level finished good in Sage 500 ERP. Group related work orders together for reporting and scheduling to see dependencies. Click Here For Video
Copy routing steps to other routings or to work orders. Very useful for adding rework steps to exisitng work orders. Click here for video.
Kanban Replenishment module for Sage 500 ERP inventory and manufacturing customers. Automate PO creation from Kanban Card scans and determine what size your Kanban Bins should be based on demand usage history.
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Validate labor entry data against routing standards; process labor entries in a grid; post labor entries in a batch. Click Here to watch a video
Major manufacturing cost enhancements for Sage 500 ERP, click here to watch video.
Control changes to linked documents and files in Sage 500 ERP. CAD files, quality and engineering documents, brochures, and more. Check-in – check-out with version control.
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Webinar: Quality Management for Sage 500 ERP, Cick Here
Demo: Cost Modeling For Sage 500 ERP. Click Here
Enter multiple labor entries and-or material issues against a work order with this handy enhancement for Sage 500 ERP. click here to watch video.
Webinar: Engineering Change Order for Sage 500 ERP, Click Here.
Automotive – Repetitive Manufacturing vertical for Sage 500 ERP with embedded Automotive EDI. click here to watch a webinar.
You sent your customer an invoice. The due date has come and gone, but you haven’t been paid. What you do next is crucial. It is important to have a standard process for collections, but different situations call for different tactics. Here are a few general types of non-paying customers that need to be handled differently.
Will Pay – need a reminder
If you sell to small companies (or are one yourself) you know that occasionally bills pile up before you get to them — a gentle reminder is all that it takes to get the ball (and checkbook) rolling. For this reason, unless you have a reason to think otherwise, your first collection contact can be a call (for large balances) or a letter/email (for smaller ones) reminding the customer that their invoice or balance is past due and asking them to contact you if there are any problems or issues. I addressed the topic of initial calls in an earlier post on the First Collection Contact. It is important to have a systematic process for identifying customers that need the reminders and to be diligent in reaching out.
Will Pay – on our terms, not yours
Many companies, particularly large ones, routinely ignore the credit terms vendors put on their invoices and pay according to their own internal practices and processing cycles. You need to understand your customer’s payment process and set your expectations and follow-ups accordingly. For example, your invoice terms may be Net 30 but your customer tells you that they pay in 60 days. Plan your follow up calls and escalations based on expecting payment in 60 days. Continuing to ignore their policy and asking for payment ahead of their normal schedule could negatively affect your relationship with this customer. If waiting 60 days is a problem for your cash flow then you need to re-evaluate the relationship and consider raising your prices or factoring these invoices to get working capital immediately.
Will Pay – when an issue is resolved
There is a whole range of administrative issues that can hold up payment of an invoice. These include paperwork deficiencies (missing PO number or supporting documents), billing errors (incorrect pricing or quantity), shipping problems (shortages or damage) and general dissatisfaction with your product or service – as well as the possibility that they actually never received the invoice. The sooner you identify and rectify the problem the sooner you will get paid. Don’t assume that your customer will take the initiative to bring the problem to your attention. Often they just set the invoice aside and wait for your call. Actual dialogue with a real person who is responsible for paying invoices is essential to identify and resolve issues. One-way communication alone (through statements or letters) is not enough in these cases.
In these difficult economic times some customers are experiencing genuine cash flow problems. They have no issues with your product or service and understand that they are obligated to pay but tell you that they are unable to do so. If they are still in business – and therefore paying other bills — you need to make case that they should pay you. Convincing them to give you money instead of someone else is a form of selling so it is important to make frequent contacts using a variety of methods (phone, letter, email) and following a predetermined sequence. As an incentive you could offer to settle for less than full amount or set up a payment plan. Customers in genuine financial distress will appreciate your willingness to work with them and this could pay dividends for both parties in the future when things improve. However, if they are unresponsive you should put them on credit hold and stop selling to them so that they know you are serious and the problem doesn’t get worse.
These are the tough cases. You know they have the ability to pay, but they refuse to pay you. They ignore your repeated calls and letters, give you unfounded objections as reason for non-payment, and break promises — “the check is in the mail.” You need to escalate and get more intensive in your efforts. If your standard process is not effective you need to try a different strategy. Engage people within your company that have relationships, such as the sales rep for the account. Your senior management or business owner can make a call and present the case that you need to be paid from a fellow business owner. When a customer is giving you this run-around it’s time to seek professional help — turn them over to a third party collection agency or attorney. You should do this before the invoice is over 120 days old. Collection efforts are more effective if the debt is not too old. You will pay a fee to the agency if they are successful but 50% of something is better than 100% of nothing.
This is trouble. Returned mail or a disconnected phone means that your customer has gone out of business or moved without informing you. If you can’t contact them you can’t collect from them. Leave skip tracing to the professionals and turn these customers over to a third party agency immediately. If the customer is nearby, drive by their location and see if the business is open or the residence looks lived in. There may be a notice posted with information that might be useful, such as a sign that says a business has moved to a new location.
· Will Pay – need a reminder: Call or send a note to remind them.
· Will Pay – on our terms: Deal with it, but decide if the customer is worth the longer payment cycle.
· Will Pay – when an issue is resolved: Fix it and follow up by asking for immediate payment once the issue is resolved.
· Can’t Pay: If they are truly unable to pay and are willing to negotiate then set up a win-win payment arrangement. If this is just one more stalling tactic treat them as a “won’t pay” customer.
· Won’t Pay: Be firm and consistent in collecting until your efforts hit a dead end, at which time turn the account over to collection.
· Can’t Find: Turn the customer over to professional collection NOW.
One final thought: in collections if you don’t ask for the money you don’t get the money. Understanding your customer’s situation so you can know how to ask them most effectively is essential for getting paid for the work you do. Use the right tool.
Many small businesses extend credit to their customers without evaluating the cost and consequences of doing so. In most cases you will want to continue selling to your customers on credit but you should understand what it costs you. Take reasonable steps to reduce this expense, and consider some alternatives.
The costs of extending credit fall into three broad categories:
Administrative costs include labor and direct expenses (such as paper and postage) associated with billing your customers, collecting past due invoices and processing payments. A Fidesic Corporation study found cost of paper billing and processing checks received in payment was $8.44 per invoice for smaller companies and that about 90% of this cost was labor. If you issue a lot of small invoices this cost could significantly erode your margin.
You can potentially reduce administrative costs through technology. First and foremost, you should use some software product to create invoices – don’t generate them manually. You may have an industry-specific application that can produce invoices and every small business accounting software package (QuickBooks, Peachtree, etc.) has this capability. Another way technology can help is by sending invoices and accepting payment electronically. This could be as simple as emailing your invoice as a PDF file, saving on printing and postage, or as elaborate as using a web application to present invoices and accept payments the way many utility companies do.
Financing costs are driven by the size of your Accounts Receivable balance. There are interest costs if you have to borrow to get the operating cash represented by these receivables. If you have a bank line of credit this could be at a rate of 6% APR — or more. If you have available cash there is the opportunity cost associated with the funds tied up in receivables – how could you have invested that capital to grow the business?
You can reduce financing costs by being more effective in collecting your outstanding invoices. Reduce Days Sales Outstanding (DSO) and your financing cost comes down. When applicable, collection automation software can reduce administrative effort and reduce outstanding receivables by 10-20%, producing additional savings. Also, don’t forget to bill promptly and accurately. Companies that issue invoices monthly can be extending their DSO by 10-15 days since the clock doesn’t start on payment until a customer has received their invoice.
Also consider the cost of credit by customer. A customer that typically pays in 30 days costs you less than one that pays in 90 days. Take this into account when evaluating pricing discounts and planning collection activity.
Risk cost is potential that an invoice will never be paid and must be written off. According to CreditPulse, the average Bad Debt Allowance is about 4% of credit sales but it varies greatly depending on industry, ranging from about 1% for oil & gas to over 8% for service businesses. I would also include unauthorized deductions as part of this cost element – that freight charge your customer deducted but you had to pay goes straight to your bottom line.
You can reduce risk by doing a better review of applications for credit from new customers and monitoring customer payment trends and other developments over time for existing ones. I addressed that topic in an earlier posting here. Further, you need to evaluate whether deductions are warranted and, if not, bill them back. Finally, engage outside collection agencies sooner. You will give up a substantial percentage of the value of an invoice – if it’s collected — but 50% of something is better than 100% of nothing.
Adding it all up. Let’s take a look at the total cost of credit for a business, considering two invoices: one for $100 and one for $1,000.
|Cost Element||$100 Invoice||$1,000 invoice|
|Financing cost (45 days @ 6% APR)||$0.74||$7.40|
|Bad Debt Allowance (4% of sale)||$4.00||$40.00|
|Total Cost of Credit||$13.18||$55.84|
|Cost as percentage of invoice||13.18%||5.58%|
You can adjust these assumptions for your own situation, but what’s your margin on that invoice?
Alternatives? Admittedly, this is an aggressive cost model but if you exclude the Bad Debt Allowance the cost of credit is still significant as a percentage of the invoice value, particularly for smaller transactions. What alternatives are available?
- Cash. Require customer to pay by cash or check, either in advance or upon delivery, or require a substantial deposit before work begins. Advances or progress payments are common is some industries. Holding up delivery of a product until payment in received gives you significant leverage. While a cash payment strategy will reduce costs and risk it may also reduce revenue if customers are unwilling to go along with it. Consider your industry and competitive position – how much leverage do you have?
- Accept Credit Cards. Credit card payments improve cash flow and reduce risk – at a cost. Many small businesses do not accept credit cards because merchant fees can run 2-3% (or more) of the transaction amount, with the potential for additional “hidden” fees. If you have many small transactions this approach is probably cost justified; a few big ones, not so much. However, having ability to accept credit card information over the phone is an important tool in the collections process and that alone may justify accepting credit cards.
- Minimum invoice amount. Consider establishing a policy that purchases under a certain amount must be paid for by cash, check or credit card; only invoice purchases above that amount. You may want to grant large customers a waiver if their overall purchase volume warrants or even give product to them for free if the cost of invoicing exceeds the value of the product. I once had a customer that purchased pallet loads of silicone sealant. One day they stopped by because they needed one tube to finish a job. I gave it to them for free (for the above reason), saving money and scoring big customer satisfaction points.
- Charge late fees. You may recover some of the financing cost and provide an incentive for prompt payment but billing late charges adds administrative expense. Frankly, most business customers ignore late fees when they are making a payment, even if it’s 60 days late, and insisting on payment of these fees can be a customer relationship issue. Late fees are of questionable legality unless clearly started on the invoice, credit application or other document pertaining to the sale. If you expect to take an account to collection and want to add on these fees you will need to have your right to assess them established.
- Factoring. Like accepting credit cards, selling your receivables to a factoring company gets you immediate cash and is appropriate for large commercial invoices. The cost is comparable to credit cards for accounts that pay close to on time but it could be more for slow payers – as much as 10% of the invoice amount. Further, you usually still bear the risk of write-off (recourse) for uncollectable accounts. Factoring may make sense if you need dependable cash flow to provide working capital for operations (to pay employees and suppliers) and do not qualify for conventional bank financing. You can find out more about factoring here.