Accounts Receivable vs Annual Gross

NickfromWI

NickfromWI

King of Splices
Joined
Mar 30, 2005
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I've taken a special interest in comparing how much money we are waiting to get paid in vs. how much we make in the whole year. There's probably books written on the subject. We could call it the Accounts Receivable to Annual Gross Ratio...or the AR:AG Ratio!

I know a lot of you guys plan to pick up the check the moment the job is completed, so technically speaking if it's all going as planned, you have NO accounts receivable balance.

But for everyone else- without needing to get into the specifics of how much you make per year and all that, what percentage of your annual sales are you usually waiting to get paid on at any one given moment in time? I think that mine is probably the highest by a long shot....and no I'm not bragging! I think I need to work on this...

I will report my AR:AG Ratio after a few other people respond...

love
nick
 
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  • #4
Right now I'm sitting at about 15% It seems like a ton to me, but i guess it doesn't matter. As long as it keeps coming it!

All of our invoices are emailed to the client after the job is completed if they don't pay on site. I would say maybe 10% of jobs get pd on the day of the job.
 
I guess a lot depends on your size of customer. I deal mostly with private individuals (by choice) maybe subconsciously I've developed techniques for getting the cheque on the day. Maybe 90pc pay at the end. (Obviously it helps if they're there!)
Keeping an invoice book in the truck helps.
What am I owed? 1 or 2 cheques max.
 
See it as a sign of your success! Seriously, I didn't mean it to sound like I am the master of business, the last three years receipts are in the glove compartments of the vans.
But, knocking on the clients doors at the end, asking if everything's ok and shutting up for 5 seconds can pay dividends.
 
I do like you Nick, send invoices by e-mail. Hardly anyone pays me on the spot. I'd say I'm around 10% at any given moment.

I know some bills will take longer to get paid though, like if I bill muni work or a large construction company or government body. The invoice usually goes through a bunch of hands before a check is eventually sent, 30 to 60 days later. I think legally anyone has 30 days to pay a bill before you can inquire a fee, but I havent had to verify yet.

At some point money just starts rolling in and a cushion is created. I once read somewhere that a business should always take as long as possible to pay a bill before having fees, that way you always keep cashflow at its highest. If everyone works that way, it turn out to be a cycle I guess.

I do have a 450$ bill lingering since September. Had to call the owner twice, hes always off in Europe or on business trips. If he doesnt pay soon I just might have to send the muscles :)
 
Whatever works for you, I've always found emails easier to ignore than a posted bill,
But easier to pay if they put the bank details on the email, world is changing, that's for sure
 
Only work I wait to get paid on is commercial. 30-60 days. I don't do tons of commercial so I have never really done the math on the waiting game.
 
About 8% for us(ruff guess). And it's the emailed invoices that seem to always be the late ones. I agree an invoice in hand at the end of the job if possible is the way to get paid in a prompt fashion.
 
I started putting in a clause on my emailed estimates and invoices saying they will be charged 10% more after 15 days and for every 30 days there after. Of course that is waived on comm/Muni work but the overall effect has lowered my receivables dramatically
 
Nick you are always asking great questions to better your business and yourself as a businessman. For a long time I have noticed that the Business Management forum was the last I would visit and that seldom. My hat is off to you!
 
  • Thread Starter Thread Starter
  • #15
Thanks Merle! I'm learning as the business grows I need to polish not only my arborist skills but also my business management skills as well.


love
nick
 
Seems on some jobs where I took a partial payment up front, the customers were waiting with a pen in hand and ready with the checkbook.

My billing for schools, HOAs, and Trust accounts takes longer, but otherwise I get paid about 50% day of, and 50% by mail soon after. Overall, I'd guess less than 5% being net 30, or upon the next monthly meeting for final approval of payment, or whatever.
 
I've always known what I like to have in the AR. I know our accountant doesn't like anything to be there but I like to see what is expected to come in. I never looked at it in terms of a ratio. I just calculated what I like to see... 3% of total sales in AR. I just did some more math... If we have 3% in AR, that means that about 1 in 4 customers will pay on the spot and 3 of 4 mail payment in. That seems about right to me.

I am totally fine with letting people mail in payments. Still only been screwed 1 time in 5 years.

Sent from my SCH-I535 using Tapatalk 2
 
On treework I get paid within 8 days or they get a nasty phonecall.
Next comes a visit.
I do nasty very well, so we don't ever wait on money.

Logging is different. we don't get paid in full till the logs are out of the woods and measured.
That can sometimes take ½ year or more.
We know that and plan accordingly. I can't make mud go away with a threatening phonecall.:lol:
 
How do you cope with having to give those kind of credit terms Stig? Does the bank cover you until you get paid, or do you squeeze in enough other work to cover your bills while doing it?
The days of me giving 90 days credit are long gone.
 
Most of my repeat accounts get paid by direct deposit after an emailed invoice, usually settled very promptly.
I stipulate payment terms on estimates: i.e. payment due upon completion of job and receipt of invoice, 7 days max and give them the option of cash, cheque or direct deposit.
That way if they ok the job they know how soon I expect to be paid.

Only a few times I've had to send the invoice again, and that's done the trick.

On small jobs for older folks, they generally have the chequebook ready and waiting when I'm done.
 
I'm lucky as most of my clients are private. This means I'm waiting on 2 cheques for the end of year, one of which has already been mailed and the other I'm going to pick up presently. I've done 2 rather large jobs for a GO this year for which my wait time was significant. Most people settle up on the spot. I would like to posit that people tend to pay on the spot at a greater rate in more rural areas than in large cities, and it seems because people in large cities spend a hell of a lot more time away from home. I remember working in Calgary and it seemed that more people would take time to pay their bills rather than immediately after a job.

To the OP question, it fluctuates for me, but has historically never been higher than 10% of gross sales. It can be rather stressful knowing that piles of money are supposed to be in your pocket, but a person tends to get used to it. Kind of like a savings plan, haha.
 
Thor's Hammer said:
How do you cope with having to give those kind of credit terms Stig? Does the bank cover you until you get paid, or do you squeeze in enough other work to cover your bills while doing it?
The days of me giving 90 days credit are long gone.
Click to expand...

We cut is as close as possible with the amount we get paid on account.
I have enough practice estimating how much wod each of us put on the ground to get pretty close to the final count.
So the outstanding credit is not so large.
The first year our present apprentice logged, I grossly underestimated his abilities, so we got a nice large check when all was accounted for.
 
Nick,

Keep a laptop or tablet with you that can print up an invoice on the spot You can get portable wireless printers which run from battery or AC inverter from your car. They are not too expensive. A quick search on amazon found the "Canon PIXMA iP100 Mobile Photo Printer" for ~$160. I bet this would get you paid faster.

http://www.amazon.com/Canon-PIXMA-i...mobile+photo+printer+with+lithium-ion+battery

Michael
 
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