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TAX ISSUES DURING A DIVORCE

        A Receivables "Slowdown" Could Be    
            Signs Of 
A PTO Strategy       

Have you been noticing a gradual increase in your accounts receivable (A/R) over the last couple of years that isn't the result of increased business?   Does it seem odd that in these relatively good economic times that many of your customers seem to be taking longer to pay your invoices?  

If so, you may be seeing the results of your customers using a "payment timing optimization" or PTO strategy, for short.

 

Business consultants often go into companies and analyze their vendor listing in order to determine which and how many will accept discounted terms or slower payments. The results they can often obtain are impressive to say the least.   

Welcome to a new era of business consulting called "payment timing optimization," or PTO for short.

 

Unfortunately, if you happen to be a vendor to one of these companies, you'll find that their increased bottom line is coming at the expense of yours.  These consultants aren't creating wealth, they are simply shifting it from you to their client!

Generally, with PTO, this shift is so gradual that you may not notice it for several months.  If the company has targeted your business as a potential "victim," you may not notice that their payments arrive 2 or 3 days later than usual.  

If you do not notice it, you may also not notice a few months later when the delay goes to 5 or 6 days and then to 8 to 10 days.  In conjunction with the slower payments, the customer will often bend over backwards to maintain good relations with you in other matters.

Who are the usual victims of PTO strategies?  Unfortunately, it's most generally our small business clients.  The outside PTO strategists often target the larger companies for their services for two reasons:  The larger the company, the higher the potential payoff (and consulting fees) and, secondly, the large companies can typically swing their weight much more easily with their much smaller vendors.

You do have options if you find your company becoming a victim of PTO strategies but, unfortunately, they may be limited due to competitive factors.  If it's your largest customers, as is often the case, you obviously have to weigh the risk that they can obtain better terms with one of your competitors before you take action.  

If you feel that the risk is low, then you should take action immediately before the payment trend worsens (because under the PTO strategy, if the vendor doesn't act, it will worsen).

Call the customer on the first day that the payment is beyond your terms.  As always with receivable collections, be friendly, but persistent.  Also, do not hesitate to call the company's Controller, CFO or President.  The old adage that "the squeaking wheel gets the grease" is never more applicable than in the case of A/R collections..

You should always ensure that your A/R system tracks payments and produces reports that show a "days paid" history so that you can spot trends. If you have not already been a victim of a customer's PTO strategy, you most likely will be.  

It is a growing trend across the country because it is a perfectly legitimate business strategy that benefits well managed companies.  As a matter of fact, your best defense may be a good offense.  If you would like to implement a PTO strategy for your own company, just give us a call.  The principles involved are fairly simply and, as noted above,   the bottom line results can often be impressive!

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