Sales Movement %
We expect sales to do one of two things for most SMEs; a large drop in sales for most industries but for some a spike, i.e. those working within food and medical supplies.
The Sales Movement % can be used as both a trigger to reach out to those SMEs that might be struggling more than others as a result of decreased turnover, and also as a way to spot any abnormalities, highlighting movements in sales that go against what would be expected.
DSO (Days Sales Outstanding)
DSO is likely to increase across all industries. SMEs that traditionally have strong, cash-rich debtors may find that debtors further down the chain are struggling. Less efficient credit control will increase DSO further.
Clients with a DSO alarmed at Caution or Alert highlights SMEs struggling with reduced cashflow. The target DSO must be set accurately to ensure any changes are alarmed at Caution or Alert in a timely manner. Your Cash Turn metric is more sensitive and will alert you to changes quicker than DSO.
Cash Desperation %
We expect this to increase. The higher the percentage, the hungrier clients are for cash, prompting lenders to reach out to clients who are struggling.
The Cash Desperation value is worked out chiefly, on how often a client uses their full availability. Clients normally notify invoices weekly and take payment weekly but as cash flow tightens, they may start to notify daily and draw down the full availability, increasing the Cash Desperation %.
We do not expect dilutions/erosions to change given that completed sales is intrinsic to the way invoice financing facilities work. However, an increase in dilutions could highlight pre-invoicing.
One common misuse of a CID facility is to assign the minimum predicted sales at the beginning of the month for the month ahead. In normal circumstances this minimum is hit and therefore the difference between predicted and actual sales is loaded towards the end of the month ahead of the monthly reconciliation. If sales unexpectedly drop, as will be the case for many clients, a credit note will need to be loaded to enable a full reconciliation. EQ Riskfactor can alert users to this using Covenants, and Focus Lists.— Andrea Tanner, Account Director
This is likely to increase. Our risk score is determined by changes to the following and this is how we expect the metrics for most clients to change:
- Cash desperation - ↑
- Sales movement - ↓
- Cash movement - ↓
- DSO v Target DSO - ↑
- Cash turn v target DSO - ↑
- Net dilution v 30 day - →
- Funds in use v Commitment recovery % - ↓