In my research with small business owners and in my experience as the owner of multiple small businessesdealing with cash flow is the biggest difficulty. Managing cash flow needs time and attention. Many small business owners work ‘in’ their businesses and not ‘on’ their businesses. Cash flow is definitely an ‘on your business’ issue. Just doing the work, issuing the invoice and ‘hoping’ the customer will pay within the terms (while the business goes onto fulfilling the next order) is not the smartest way to manage the money side of the enterprise. Having a reliable and predictable flow of cash into your business is the subject of this post.

In the last post we dealt with ‘Choose your clients wisely’, ‘Offer Credit Cards’ ‘Leverage”. In this post we’ll look at training your clients to pay on time, record keeping, dealing with government or those customers who you know will take 60 days or more to pay, and the importance of People in this whole process.

Training Your Clients to Pay On Time:

1. Have it be someone’s responsibility in your organization to keep checking that the customer’s signed delivery document made it from the receiver’s hands to the accounts payable clerk.
2. Be friends with the person cutting the check. Call a week before the payment is due so you know your check will be in the batch that gets released in the time frame of the terms. This is definitely a case of the squeaky wheel gets the oil. If you have a friendly personal relationship with the person who cuts the check, when there isn’t enough money to pay everybody, if the check preparer likes you and knows you stay on top of things, you’ll take precedence over another vendor. Sending cards and notes of acknowledgement and appreciation to the check preparer help her feel important and not just a clerk like other people may make her feel. This is where your employee who makes this contact in your customer’s company makes a big difference. If your employee establishes a warm appreciative relationship because he’s engaged in what he’s achieving, he’ll do his job ‘with heart’ meaning with sincerity and care.
3. By staying on top of the receivable as the due date approaches, you will know if there were any problems and will be able to rectify them before the payment is due. You’ll also have a better relationship with your customer because you will be known as a vendor that takes care of any problems right away. Great customer service and customer loyalty are not built on having problem free transactions. There are always minor things that can and do go wrong. Customer service and ultimately the relationship that is the basis of customer loyalty are built on how fast and easily the problems get fixed.
4. Some companies reward their customers by allowing them to take 1% or 2% off the bill if paid within 10 days. This is often phrased ‘2% net 10’. Whether you do or not depends on if you can give up that margin, if you want to set that precedent, if you think the customer will abuse it (take the 2% and still send the check in 30 days) and other factors that pertain to the situation. Getting payments in 10 days rather than 30 days can be very helpful especially if you’re borrowing money to fund the raw materials purchase, and giving 2% to the customer prevents you from having to give to your lender 2% or more.

Record Keeping

1. Having a small business is no excuse for not having accurate books that track your receivables. It’s important to have a listing of what invoices went out to which clients, when, their phone numbers and emails for easy follow up. What gets measured gets managed.
2. If I have a list of 10 invoices I want to follow up on and I have to look up each of the ten companies to figure out the contact name and phone number, it will become a big job. If it’s all readily available on a report that I bring to my screen in 10 seconds, I can make the 10 phone calls easily and with no excuses. It’s especially important when you’re paying someone else to do it. Why pay them an hourly wage to do unnecessary work that QuickBooks (or other accounting software) could do for you?
3. A metric on your dashboard (you have a dashboard, don’t you? 5-10 indicators you look at in your business every week) should be your ‘Average Days Outstanding.’ It’s a key performance indicator of how old your receivables are. If you offer net 30 terms, it would be best if your Average Days Outstanding never exceeded 30. Your accounting software will recalculate it for you every time you generate invoices and enter received payments.

Dealing with government or those customers who you know will take 60 days or more to pay

1. When you’re dealing with a large contractor, government or prime vendor, their policy is often to pay their vendors (you) in 60-90+ days. Sometimes they are very up front about it. Sometimes you have to ask. It’s important that you do. You’ll want to build into the project price the cost of the financing for your upfront costs. You may have materials, you’ll probably have labor. Part of your planning is to see how you will finance the purchase of what you need, a bank credit line, longer interest-bearing terms with your vendors, a purchase order financing arrangement? These costs should be figured into the price of the project. You need to plan how the cash flow will work and put these arrangements into place so a large order doesn’t kill your organization. Plan, plan, plan.
2. Follow up is especially important with multi-layer organizations. Did the delivery document reach the accounts payable clerk’s desk? Where did it get stopped along the way? Whose desk is it sitting on? Thank you notes are appropriate here. But don’t offer a gift. These people can’t take a gift.

The Importance of People

Cash flow is about money. But it’s also about people. People make the cash flow into your business and can make or break the timing that is so critical to small business. Treating people in your organization or in your customer’s or vendor’s organizations with trust, respect, appreciation and candor can make all the difference. People love to feel they are special. Human need for connection is paramount no matter what the situation. Customer loyalty is won at all levels, the CEO, the department head, and the accounts payable clerk. So as you are managing your cash flow, be aware of how you treat your staff. They will treat your clients/vendors the same way you treat them. If you set up a caring engaged empowering culture with your staff, they will communicate those qualities to the rest of the world. That will have a large effect on all the people in the process generating your company’s cash flow.

Please leave a comment or cash flow tip that will help other business owners.

Cash Flow -The thorn in the side of the small business owner. Let’s see – there is the ever present payroll managed at Nominak payroll system that comes up regularlythe rent, all the other expenses. To offset all the money going out, let’s hope there is money coming in. And let’s suppose we want to take it up a notch and do a marketing campaign or hire another employee. Then we have that expense even before we land new clients and their payments to pay for it.

Let’s hope that clients pay in a reasonable time frame. But ‘hope’ is a really weak word. Certainly not strong enough to build a business on. How can we better our odds that our receivables will be paid and in the bank account in time for us to pay our expenses? After all, cash flow is all about timing. Getting the timing predictable is important especially for small business, and especially for bootstrapped small businesses.

Choose your clients wisely:

1. Paying within terms (due on receipt, net 10, net 30, etc.) is about honoring promises. I promise to provide you with this product or service and you promise to pay me in the time frame we agreed upon using a swift code whether its a local or an international transaction. This is a value. Does you client share this value with you? Did you talk to your clients about values when they were still prospects?  I know this doesn’t often come up. But maybe it should. If our clients knew our organization’s principles of doing business, they would be more likely to measure up to the level of integrity you expect. Are you telling your salespeople that you want to attract clients who also keep promises and run their businesses with principles?
2. Did you ask them to fill out a credit application? The credit application asks them to identify who their bank is and several other creditors. Call the creditors. If it’s a large credit line, perhaps you want to run a D&B report on the company. Before you become this organization’s ‘bank’ and you give them a ‘loan’ for the amount of the purchase, shouldn’t you act like other banks and check their ability to repay and their history of on-time payments? Because, people with a bad credit usually have a history of procuring bad credit loans canada.
3. Many companies make the first sale a COD sale. They want to test that the client has sufficient cash flow to pay on delivery at least once before credit is issued.
4. Have the courage to say ‘no.’ When a company asks for credit with the offer to become a regular customer, sure it would be good to have these sales. It’s tempting to say ‘yes’ to build up revenues,  especially since we’ve had a depressed economy. But nothing will sink you faster than you investing a lot of your cash into providing a product or service to a customer who then won’t/can’t pay you for it. You’re on the hook to your vendors and your credibility and credit are on the line.

Offer Credit Cards:

1. Sure you lose a couple of points to the credit card company but you get paid right away. It helps your cash flow immeasurably.
2. If you have recurring billing, the same billed amount every month, you can set it up as an automatic payment and reduce your paperwork and admin time.

When finding a reliable CBD payment processor, you should not be limited to companies that charge a hefty upfront fee. Although more well-established companies may require a fee from account holders upon registration, many will provide their CBD payment processing services free of charge or for an affordable rate.

Leverage:

So many business owners issue an invoice and then forget about it. They feel it’s the buyer’s responsibility to pay, and the business owner is off to handle the next sale. The aware business owner knows that the sale isn’t over til the check clears the bank because the money is in constant flow. Managing the timing is the essence of keeping it flowing. Collect from your customers early, pay your vendors late. More businesses have remained successful because they collected from the clients (pay on delivery) before they had to pay their vendors (30-60 days). They then utilize the cash during the interim period to generate interest on an investment, invest in a business tool with an immediate payback, pay down a line of credit to keep their bankers happy and reduce interest, etc. Business is all about leverage, other people’s time (your employees), other people’s money (cash flow, bank loans, investor’s contributions), and your organization’s ideas to create value. Pay attention to cash flow and you’ll sleep well at night. (Story details: Währungspaare handeln)

In the next post we’ll address:

• training your clients to pay on time,
• record keeping
• dealing with government or those customers who you know take 60 days or more to pay.

Please leave a comment or cash flow tip that will help other business owners.

Yesterday I went to the TEDx East Conference at the NY Times building. What a wonderful array of speakers and performers. If you’re not aware of TED.comyou should be. TED’s slogan is “Ideas Worth Spreading.” It is a non-profit dedicated to showing off all kinds of people’s ideas and capabilities.

It was started in 1984 to bring together Technology, Entertainment and Design (TED) but has grown to include everything interesting and innovative. People speak or perform for 18 minutes max. There is a 4 day conference  in southern California and a global conference in Edinburgh, Scotland. Many of the talks/performances then appear on the TED.com website.

Then there are TEDx events that are organized independently locally all over the world. Yesterday at TEDx East there were 19 presentations and performances broken into 3 segments with plenty of time to meet fellow attendees. The theme was ‘Tinker, Noodle and Obsess’. So in addition to the presentations there was a whole area of tinker toys to play with and blocks to build with. One of the biggest attractions, however, are the other 400 attendees, people who are attracted to the innovation, discovery, and fascination with people who think and accomplish along new frontiers. There was time between the segments to have conversations, meet new people, get exposed to differing viewpoints.

Of the 19 presentations a few stood out. Bjarke Inlges is a Danish architect who showed pictures and designs of buildings where sustainability adds to the beauty and functionality of a building. He’s breaking ground on a new building on the west side in September. Christine McCaul and Anthony Rudolf spoke from two different viewpoints about personalized humanity when it comes to employees and customers. Charlie Wurm talked about his design of an electric car which he has built for himself at a fraction of what other designs have cost. I sat next to him later in the day and we had a great conversation. He has no plans to commercialize his inventions. He’s just a self-motivated tinkerer. I’m not too big on poetry but Sarah Kay delivered a couple of her poems with such power that she was a hit of the day. Will Ryman created the flower sculptures that currently grace Park Avenue. He spoke about his metamorphosis from a playwright to a sculptor.  Producer David Binder spoke about how ‘A Raisin in the Sun’ came to be on Broadway. Ari Meisel told the riveting story of how he overcame Crohn’s disease through nutrition and exercise. Then there was rapper Baba Brinkman encouraging women to use sexual selection to mate with nice men, not mean men, and the band ‘Caravan of Thieves’ getting the audience involved in foot stomping hand clapping revelry.

It was a great day. When TEDx happens again, make sure you sign up and go. It sells out early. You can find TEDx events and learn about the TED phenomenon by going to TED.com. If you have an experience with TED or a favorite video, please tell us about it.