Here are some tips that will ensure that you get the maximum return from your cash and ensure money keeps flowing into your business.
Read through the list below and select 1 or 2 that you don’t do, but know that if you did, it would make s significant positive difference to your business. Commit to making a change within the next 24hours. Good luck!
1. Fill the pipeline
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PERSPECTIVE
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CONTRACTED
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INVOICED
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PAID
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To maintain a healthy cash flow and to avoid any nasty surprises, a business needs to ensure there is activity going on in each of the categories above. If your business needs 20clients / month to be profitable, there needs to be 20 clients in each of the categories. If sales activity stop and the “Perspective” dries up, no business gets contracted, invoiced or paid.
2. Collect money.
Scenario: John rings Company ABC as an invoice is overdue. John speaks to the Accounts dept in ABC to be told they never received the invoice. John sends the invoice again and 1 week later is told that the invoice has been sent to shipping as there was a query on it. Another week goes by and John is now told he has missed this month’s cheque run so his payment will be processed next month.
Solutions:
(a) Put a robust debt collection process in place.
- Create a computer or paper based invoicing system – whichever makes sense for your business.
- Invoice early – be consistent so suppliers know when to expect your invoices.
- Agree payment terms and query handling process with suppliers in advance.
- Call the supplier a few days before the invoice is sent out telling them that an invoice is on the way. Follow up a week later with another call to ensure the invoice has been cleared for payment.
- Send statements MID month in plenty of time for your suppliers month end cheque run.
(b) Desperate measures – If a Company is consistently not paying, sometimes it is a matter of who ever shouts loudest gets paid. A dramatic way to shout loudly is to sit in the customer’s reception and refuse to leave until you get paid.
(c) Last resort - Hire a debt collection agency
3. Take away all the excuses.
Encourage suppliers to pay by standing order / direct debit.
Offer a Credit card payment facility.
Negotiate finance terms if you know the customer can not pay your full debt in one payment.
Provide FREEPOST envelopes.
4. The golden rule.
Persistence & Consistence.
Develop a routine for sending out invoices so that your key suppliers know when to expect invoices from you. Decide on a debt collection process that works for you including items such as:
- contact with supplier prior to issuing invoice
- date / time of month invoices will be sent
- escalation process – Accounts dept to Manager to Owner to Solicitor to Court action.
Be clear in your own mind what process you are going to use and stick to it.
5. Encourage good habits from suppliers.
Talk to your suppliers and ask them when the best time is to invoice them. Ask them how they would like to pay and if there is anything you can do to make it easier for them to process your invoices. Document what you agree, send the supplier a copy and stick to the agreed plan.
6. Genuinely no money.
If a supplier genuinely can not pay, have a conversation with them sooner rather than later. Try to negotiate payment over a period of time. Consider using a standing order or direct debit to facilitate this.
Learn form the experience and make the necessary changes to your own debt collection process to minimise the risk of the same thing happening in the future.
Only provide new products / services if the supplier agrees to “Cash on delivery” or upon receipt of sufficient funds into your bank account.
7. Managing your bank manager
One of the key things any Bank Manager will be concerned about is your profitability. As is often the case, losses can be hidden for a considerable time with a large overdraft. To effectively manage your cash flow and keep your Bank Manager on your side you need to:
(a) Recover your profitability
(b) Repay the overdraft.
In this order!
Your Bank Manager may be open to converting your overdraft to a term loan.
To regain profitability look at the following:
(a) Get outstanding invoices paid.
(b) Convert stock into cash.
(c) Negotiate with creditors to delay payment
(d) Ask existing customers for advance payments
(e) Analyse costs – overheads, staff, buildings
8. Don’t loose sight of the Big picture.
Many business people are taking a very short term view at the moment. “If I can make it through the next 6 months, I will be OK”. While it is important to manage the day to day activity of any business it is also vital that you stay focused on your longer term plans for the business. If you don’t, when we do come out of this recession, you won’t be ready to take advantage of the upturn.
9. Generate more sales.
It is much easier to increase your sales from existing customers than it is to find new customers. Explore the opportunity to offer existing clients complimentary products to what they already buy. Offer them a discount for larger volumes. Make sure your clients are aware of the full range of services / products that you offer. Don’t let customers be able to tell you “I didn’t know you did that”.
These tips are a combination of my own experiences as a Small Business owner along with ideas that Eamon Curtin of HJM Business Development shared with me during a recent mentoring session we had kindly supported by the LCEB.
If you have any questions on any aspect of this paper, please make a comment to this blog.
I facilitated a networking event on behalf of the Limerick City, Limerick County, Clare County and North Tipperary Enterprise Boards on Wednesday last where we had as the guest speaker - Bill Cullen of “The Apprentice” and “Penny Apples” fame. Bill spoke for over an hour giving his audience ideas on how they can not only survive this recession but to actually thrive in it. One of the strategies he mentioned, was one I had come across from Anthony Robbins a few years ago called CANI.