Protect your profits when big customers pay late

August 24, 2015 Scott Simpson

If your large prospect pays everyone else slowly, how will they pay you? You got it. They’ll pay you slowly too. Knowing this, factor it into your pricing upfront.

Let’s use an example.

Say your average customer spends $100 and nets $25 in gross profit, or 25%. When you factor in warehouse, delivery, sales, administrative and financing expense, the net profit of the average customer is 4%. 

Let’s also say you have a line of credit with a 6% interest rate annually, or 0.05% for every month. Someone who regularly pays you 60 days late is costing you 1% more in borrowing costs (2 extra months *0.50%). And the 80/20 rule generally applies here – 20% of your customers are occupying 80% of your time. When you add it up, rather than having administrative and finance costs be 3% for the average customer, they’re more like 9%. Now you stand not to make 4% but actually lose 2%!

Read the full article to learn how you can turn a big customer who pays late into a profitable one. 

About the Author

Scott Simpson

Scott is president and CEO of BlueTarp. He has spent the majority of his twenty year career in financial services helping businesses grow more rapidly through the effective use of credit.

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