Get an OSSPA Report to Collect Your Other Profit!

DSO Reports

Virtually all managers and owners are aware of when orders are booked/placed and when extended credit has exceeded the company’s normal credit terms. These reports are affectionately known as a Daily Sales Outstanding report and can be for a Branch, Region and by customer or customers. In fact I don’t know a single distributor who can’t rattle off the DSO figure for their area of responsibility.  DSO’s are a touchy subject to the point that if a company issues too much credit to their customers they become keenly aware of their legal exposure, let alone tieing up their working capital.

Most distributors have a financial manager that rides herd on their DSO’s and  makes a point of collecting from certain customers. They do this by using a DSO report that alerts outstanding orders that have been sold using the company extended lines of credit. The report usually classifies these orders every 30, 60,  90 and 120 days plus. Usually when these orders hit the 60, 90 or 120 day mark sales is sent to collect (or a credit manager becomes more persistent or additional action is considered). Some times they are successful. Of course it is the sworn duty of some contractors and  customers to use as much credit from as many different distributors as possible.

OSSPA Reports

But there is another type of credit that usually sits uncollected due to being “out of sight”.  This credit is “hidden profit” for a distributor.  And while always important, it is critically important as margins are eroded, the cost of capital is rising (albeit slightly for now) and distributor net profitability is adversely affected by the duo of eroding margins (sometimes due to price “wars”) and decreasing margins on wire / pipe and LED projects which may be “controlled” by lighting agents.

This “hidden profit” takes the form of a SPA (or credit back sale) and it is the responsibility of the distributor to claim the profit back from the manufacturer.

Some distributors setup protocols about the way they set-up SPA’s. Others prefer to collect these manually after the sale has been made with Excel spreadsheets or stacks of paper (if they remember or if whomever it is delegated to remembers). Very few, if any, set-up a OSSPA report. This is similar to a DSO report except it deals with outstanding SPA’s that are as yet un-collected. Newer ERP software systems give the viewer (management) the updated outstanding balance of any unclaimed SPA’s as well as the outstanding balance of any claims that have been disallowed. Most distributors are unfamiliar with the setup or the idea of an OSSPA report,especially if they are running 15-30 year ERP systems. So, if you are concerned about your profitability and want to recover your “hidden profit”, you need a report like an OSSPA report to improve your bottom line.

DSO reports generate better cash flow from your customers. OSSPA reports improve your cash flow (and recapture additional profitability that you’ve negotiated) from your suppliers.