Most business owners know that collecting payment from customers is important. What they underestimate is exactly how much money they are losing every extra week that a customer takes to pay. This is not just a cash flow inconvenience. It is a real, measurable cost to your business.

Here is how to think about it. Every ringgit sitting in your accounts receivable is a ringgit your business has already spent but has not yet recovered. You paid your suppliers, your workers, and your overheads to produce that sale. The customer is essentially using your money, interest free, until they pay. The longer they take, the more capital you need to keep the business running, whether through bank borrowing or the owners' own money.

There is a simple measure you should track every month. Take your accounts receivable balance and divide it by your average weekly sales. This tells you how many weeks of unpaid sales you are carrying. A business with RM5 million in receivables and RM1 million in average weekly sales is carrying five weeks of uncollected revenue. If you can bring that down to four weeks without losing customers, you free up RM1 million in cash. That is money you could use to reduce your bank borrowing or invest back into the business.

The cost of not doing this is real. If that RM1 million is funded by a bank overdraft at 6% per year, you are paying RM60,000 in unnecessary interest charges. Multiply this across years of neglect, and you can see how loose credit management quietly erodes profitability.

The right response is not to refuse credit to all customers. Credit terms are often necessary to win and keep business. The right response is to know your numbers, set clear credit terms, enforce them consistently, and identify which customers are persistently slow payers so you can make deliberate decisions about whether to continue extending them credit.

Business owners also need to watch for a sudden increase in their receivable days. If it was four weeks last quarter and it is now six weeks this quarter without a change in your credit policy, that is a red flag. Either some customers are struggling to pay or your collection process has weakened.

Want to know your true receivable position and what it is costing you? Our CFO advisory team can run the numbers and show you exactly where the leaks are. WhatsApp us at 010-246 2151.

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