Cash flow is the lifeblood of any business, and for wholesale businesses, it plays a crucial role in ensuring smooth operations, meeting financial obligations, and fueling growth. Trade debtor days directly impact a wholesale business’ cashflow.
Trade debtor days measure the average time it takes for a wholesale business to collect payments from its customers. When trade debtor days are prolonged, it can have a significant impact on a company's cashflow and profitability.
We explore the 5 things that could be slowing down your wholesale business; trade debtor days and how you can overcome them.
1. Lack of credit evaluation
Extending credit to customers is a common practice in the wholesale industry, however not evaluating the credit scores of your customers can slow down your trade debtor days. If you offer credit to debtors that have a poor credit, you could risk not being paid back on time and slowing down your debtor days.
Before offering credit, conduct thorough credit checks to assess the financial health of your customers. Establish credit limits and terms that align with their creditworthiness and regularly review and update them as necessary.
Start credit checking your customers.
2. Unclear payment terms
A lack of clear payment terms for outstanding invoices can result in extended debtor days. It's important to set clear payment terms to all customers, this includes the payment due date, the consequences of late payment, and any interest or fees that may be charged.
With clear payment terms, there is no confusion or misunderstanding that could lead to slowed down trade debtor days.
3. Late Payments from customers
Delayed payments from customers can significantly impact a business’ cashflow and slow down trade debtor days. It's important to consistently follow up on outstanding invoices and promptly address any payment related issues to reduce debtor days.
Using invoicing software can help ensure you get paid on time by automating reminders for due payments.
You could also consider an invoice finance facility to speed up the cashflow cycle from your invoices. Many invoice finance providers will also include credit control as part of the facility, so they will assume control of collecting the invoices for you.
4. Supply Chain Challenges
Supply chain challenges can significantly slow down trade debtor days for a wholesale business. Delays in receiving raw materials or finished products can lead to inventory shortages or excesses. When products are not readily available or are stuck in transit, it hampers the ability to fulfil customer orders in time. This can result in lost sales, customer dissatisfaction, and delayed revenue.
Overreliance on a single supplier can intensify these challenges. Diversifying your supply chain will help to mitigate the impact to your trade debtor days.
5. Paying Suppliers Upfront
When you pay your suppliers upfront for materials or goods, you will need to wait longer between paying for the materials and revealing payments from your customers, slowing down your trade debtor days. Longer debtor day can cause a strain on your cashflow, meaning you could struggle to cover other essential expenses, such as rent, utilities, and employee salaries.
To reduce your trade debtor days, you could negotiate more favourable terms with suppliers. Accessing a line of credit with your suppliers could give your business the room to purchase more stock, without causing a cashflow strain.
To access a higher credit limit and negotiate terms with your suppliers, you’ll need a good credit score. You can check your credit score with your Capitalise for Business account, and if you need to improve it, you can increase your credit limit using the Credit Review Service.
If you’re facing challenges with your business’ cashflow due to extended trade debtor days, accessing funding could ease your concerns. Having the right funding in your business enables you to have the working capital to purchase more stock, invest in opportunities and grow your business.
Our Funding Specialists can help you find the right funding for your business.
