Client Background
Our client is a $20 million manufacturer in the construction industry, supplying products to contractors and wholesalers across the region. Following a recent merger of two smaller companies, the business now manages an extensive portfolio of approximately 350 customers with outstanding balances.
Client Challenges
- The company struggled with managing credit risk and collections due to the absence of a structured credit management team.
- Over 45% of the accounts receivable portfolio was past due, with 15% of those balances exceeding 60 days.
- The company had recently incurred two large bad debt write-offs, significantly impacting its financial health.
- Borrowing costs on outstanding receivables were $6,700 per month, putting additional strain on cash flow.
Our Solutions
- Strategic AR Management: The Outsource AR team took over the management of their accounts receivable portfolio, focusing on reducing delinquencies and improving collections.
- Implementation of SMART Technology: We integrated its proprietary SMART system, a state-of-the-art AR management tool, to track, prioritize, and streamline receivables in real-time. This provided better visibility and control over the AR process.
Our Results
- Reduction of Past Dues: The over-60-day past due balance was reduced to less than 2% of total receivables, significantly improving the company’s overall financial position.
- Increased Cash Flow:
- Monthly borrowing costs dropped from $6,700 to $1,793, resulting in annual interest savings of $58,884.
- Improved cash flow allowed the company to increase sales by 20% during the contract period with Outsource AR.
- Bad debt expenses were reduced by $120,000 annually, further boosting profitability.
- Cost Reduction:
- The percentage of current receivables increased to 80%, enhancing overall liquidity and operational efficiency.
- Bad debt, which previously stood at 1%, was reduced to just 0.04%, minimizing financial risk and enhancing the client’s creditworthiness.
Through tailored AR solutions and advanced technology integration, Outsource AR resources empowered the client to overcome financial challenges, reduce costs, and achieve sustainable growth in a competitive construction market.