You invoiced $180,000 this month. On paper, a good month. But of that money, $140,000 you have not yet collected, it is out on the street, in accounts receivable, lent to your customers interest-free. And $38,000 of that receivable is more than 90 days old.
Meanwhile, you do pay on time: your supplier, your staff, your bank. The money your customers owe you comes out of your pocket until they decide to pay. You are financing your customers’ operations with your own working capital.
The problem is not that you sell too little. It is that you collect too slowly. And slow collection has a solution most distributors do not apply out of fear of bothering the customer: they believe tightening collections scares off sales. It does not have to. You can collect faster without losing a single customer, if you do it with process instead of pressure.
Here is how.
First Measure, Because You Cannot Improve What You Cannot See
Before any collection tactic, you need the number. Days sales outstanding (DSO) measures how many days on average pass between invoicing and collecting. It is the indicator that turns “we collect slowly” into actionable data, and it is one of the seven numbers every distributor should measure every month.
If you give 30 days of terms and your DSO is 68, the problem is not your credit policy, it is your collection: customers take more than double the term you granted. That gap is exactly what you are going to recover. Lower DSO from 68 to 50 days while invoicing $180,000 per month and you free up roughly $108,000 of working capital, without selling a dollar more.
How to do it: Calculate your DSO and its trend. Review the aging of your receivables: what percentage is current, at 30, at 60, at 90+. That breakdown shows you where your money is trapped and which customers have it.
1. Invoice Well and Invoice Fast
Collection begins with the invoice, not when the term expires. A huge part of payment delay is not customer ill will, it is friction in your own invoicing process. Invoices that go out late, invoices with errors the customer rejects, invoices that do not reach the right person, invoices missing the purchase order the customer requires to pay.
Each of those problems resets the clock. If you invoice five days after delivering, you already lost five days. If the invoice has an error and the customer returns it, you lost two weeks.
How to do it: Invoice the same day as delivery. Verify that each invoice has what the customer needs to pay it: purchase order, correct tax data, clear breakdown, and that it reaches the person who authorizes payment, not just whoever received the goods. A correct invoice that arrives fast to the right person gets paid weeks earlier than a late or erroneous one.
2. Confirm Receipt Before the Term Expires
The most common collection mistake is waiting silently for the term to expire and only then contacting the customer. By that point, if there is a problem (the invoice got misfiled, a detail is missing, there is a question), you already lost the entire term waiting.
A brief, service-oriented contact a few days after invoicing (“confirming you received the invoice, is everything in order for payment?”) achieves two things: it catches problems while there is still time to resolve them, and it signals to the customer, without pressure, that you keep orderly track of your accounts. Customers pay first the suppliers who follow up.
How to do it: Establish a confirmation contact 3-5 days after issuing the invoice. It is not a collection call, it is a service call. Confirm receipt, resolve any questions, and leave the payment date agreed. This single habit advances payments noticeably.
3. Make Payment Easy by Every Possible Means
Sometimes the customer does not pay fast simply because paying you is inconvenient. You only accept transfer to one account, or a check at your office, or the payment process has friction-filled steps. Every obstacle to paying you is a reason to postpone.
The easier you make payment, the faster you collect. This is especially true in the region, where multiple payment methods coexist and customers of different sizes have different preferences.
How to do it: Offer multiple payment channels: transfer, deposit, online payment, and the digital methods your customers already use. Send the payment information along with the invoice, do not make them hunt for it. Eliminate every unnecessary step between the willingness to pay and the payment made.
4. Use Early-Payment Incentives Instead of Penalties
Here is the difference between collecting with process and collecting with pressure. The late fee punishes the customer who already paid late, generates friction, and rarely changes behavior. The early-payment discount rewards the customer who pays early, and changes behavior without damaging the relationship.
A small discount for payment within the first 10 days (for example 2%) gives the customer a concrete economic reason to pay you before other suppliers. For you, that 2% frequently costs less than the financial cost of carrying the receivable an extra 40 days, and the effect on your cash flow is immediate.
How to do it: Calculate whether an early-payment discount makes sense for your margins (compare the discount against your cost of capital for the days you advance the collection). If it does, offer it clearly and consistently. The customer chooses to pay early because it benefits them, not because you pressure them.
5. Segment Collection by Customer
Not all customers who owe are the same, and treating them the same wastes effort where it is not needed and neglects where it is. The large customer who always pays on their date does not need the same attention as the customer who chronically falls behind. The old receivable of a customer in trouble is not handled like an occasional delay from a good customer.
Segmenting collection concentrates your energy where the trapped money and real risk are, while maintaining a comfortable relationship with the customers who already pay well.
How to do it: Classify your receivables. Customers who pay well: service contact, no friction. Customers with occasional delays: slightly closer follow-up. Chronically delinquent customers or old receivables: active management, payment plan, and review of the credit terms you grant them. Segmented collection is more effective and less draining than chasing everyone equally.
Want to Lower Your DSO Without Friction With Your Customers?
At IVOR Bearings International we help distributors structure their collection process and credit policy to free working capital without losing customers. HERE we work on it with you. Or email ventas@ivorbearingsint.com with your current DSO and the term you grant.
The Regional Example: From 71 to 49 Days Without Losing an Account
A distributor in Panama invoiced $200,000 per month with a DSO of 71 days, though its official term was 30. It had close to $470,000 permanently lent to its customers, and lived tight on cash despite selling well.
It did not pressure anyone. It changed the process: it started invoicing the same day as delivery instead of accumulating invoices for the weekend, added a confirmation contact at four days, enabled payment by transfer and deposit instead of only check, and offered 2% discount for payment in 10 days to its medium accounts.
In five months DSO dropped from 71 to 49 days. That freed roughly $147,000 of working capital, money that was on the street and now was in its account. It did not lose a single customer; several thanked it for the early-payment discount. The same business, the same customer base, $147,000 more in available cash.
Collection Is Not the Same as Credit
It is worth distinguishing two things that get confused. Collection is recovering fast what you already sold on credit. Credit policy is deciding who you give terms to, how much, and under what conditions, before selling. Both affect your cash flow, but they are managed differently.
Improving collection (the subject of this article) lowers your DSO on the sales you already made. Improving credit policy prevents the problem from being created, deciding terms well from the start. Both work together, and the second deserves its own in-depth treatment in how to extend terms without destroying your cash flow.
Your Action Plan
- Calculate your DSO and the aging of your receivables. You need the number and its breakdown before acting. It shows you how much capital you have trapped and in which customers.
- Fix your invoicing process first. Invoice the same day, without errors, to the right person, with everything the customer needs to pay. It is the cheapest and fastest improvement.
- Add the early confirmation contact. At 3-5 days after invoicing, not when it already expired. Catch problems while there is time.
- Make payment easy and reward early payment. Multiple payment channels, and a discount for early payment if your margins allow it.
- Partner with commercial operations experts. At IVOR Bearings International we accompany distributors in structuring collection and credit that frees capital without sacrificing the customer relationship.
Collected Money Is Worth More Than Invoiced Money
A sale is not complete until the money is in your account. Until then, it is a loan you made to your customer, financed with your working capital. Invoicing a lot and collecting slowly is growing on paper while drowning on cash, the exact trap distributors fall into when they confuse sales with financial health.
Collecting faster does not require pressuring anyone or risking relationships. It requires a process: invoice well and fast, confirm early, make payment easy, reward early payment, and segment the effort. With that, the capital you had on the street returns to your account, and the business stops financing its own customers.
Contact IVOR Bearings International today. HERE we work on it with you. Or email ventas@ivorbearingsint.com with your current DSO.
Stop lending your capital to your customers by accident. Collect fast, and collect without fighting.
