Cashflow is often compared to heath; in fact, many experts see cashflow as a key indicator of the overall health of a business. I like to think of cashflow in terms of the circulatory system. In a healthy person, the heart and blood vessels effortlessly pump blood around the body. Sure, it’s slower when we’re relaxed and faster when we’re exercising or stressed, but it’s not something we ever think about. Unless something goes wrong. And that wrong thing is usually a blockage or damage to the heart muscle, which constricts the flow of blood around the body. When this happens, the ideal scenario is to identify the problem and remove the blockage or repair the damage, so blood can flow property again. Unfortunately, most business people don’t see poor cashflow as a symptom of a bigger problem that needs diagnosis and treatment. Instead, they go for a quick fix by injecting more money into their business. Imagine if you tried to fix constricted blood flow by injecting more blood into your veins. Would your circulatory system work better? No. The underlying cause — that is, the blockages or damage — would still be there and probably get worse. So what’s the answer? I think it’s an attitude change. Most people see poor cashflow as something that just happens. However, I see healthy cashflow as a choice — just as you can manage your health with diet and exercise, you can manage your cashflow with good practices and planning.
1. Make your terms clear
Implement practices that minimise the risk of overdue payments:
- Get every order in writing
- Make sure those who make orders are authorised to do so
- Set a clear payment period
- Outline the steps that will be taken with overdue invoices.
2. Get clients to pay faster
Teach your clients to respect your need for prompt payment:
- Shorten your payment terms … make it 7 or 14 days instead of the standard month or 3 months
- Find out your client payment schedules and time your invoices to match
- For big jobs or overdue payments, organise part payment milestones or full payment before delivery terms
- Conduct credit checks or set credit limits for every client (and let them know when they have maxed out!).
Sometimes, however, you are the reason customers pay late. Do you:
- Invoice clients immediately?
- Make payment terms and methods clear?
- Immediately deal with mistakes on invoices?
- Have a policy for dealing with clients who regularly pay late?
3. Deal with clients who do not pay
Unfortunately, your best or most regular clients are often the worst offenders, which requires tact and strategy:
- Look for patterns and gently nudge change with polite reminders
- Act on late payments immediately … don’t let it slide just because you don’t want to lose the client
- Work hard to develop personal relationships with serial late-payers … it’s much harder not to pay someone you feel you know
- Be direct — ask how you can work together to improve payment rates.
4. Manage stock levels
If you sell products, maintaining the right balance of stock can be tough. The aim is to find a balance that doesn’t tie up excessive cash and doesn’t take up too much storage space, yet meet client demands. One solution is to find suppliers who can:
- Deliver at short notice
- Hold stock for you
- Ship directly to clients on your behalf
- Offer extended payment terms, so you can collect what’s due on your invoices before you have to make payments.
And make sure you don’t fall into the trap of buying huge amounts of stock because it’s cheap or on sale. The cost of storage and maintenance may outweigh the so-called bargain! 5. Increase sales If there was an easy answer to this, we’d all be swimming in money! However, I can offer two pieces of advice with certainty:
- Have a well-written and thorough marketing plan
- Question to effectiveness of conventional advertising forms and explore the alternatives.
In an age of social media, remember that clients want instancy, entertainment and ideas that revolve around the Internet and mobile devices. You have greater power than ever to have direct contact with your clients. You don’t need third parties, such as newspapers, magazines and radio, to advertise — instead, you can learn what your clients want (through data mining and collecting other feedback) and create your own content. 6. Reduce costs Streamlining your costs often takes little effort, unites your team and has a snowball effect. Can you negotiate better freight or utilities, reuse packaging materials or use fewer paper products? For example, it’s so easy to turn scrap paper into notebooks or print double-sided … and, as an added bonus, you can use your efforts to promote the environmentally friendly efforts of your business. The key is to unite your team in the effort. Create common goals that are realistic and tangible, such as saving a ream of paper a week or running everyone’s errands in a single trip.
