There are lots of steps a company can take to increase the quantity and speed of cash coming into the business. The idea is to be alert to opportunities to increase the cash flow and consistent in your approach to cash flow management to make sure the company is maximizing the inflow of cash.
1 – Set Sales targets And Quotas
Setting sales targets and quotas for yourself and your sales staff is a very effective way to keep them focused on what they are supposed to be doing, and checking with them at the end of each day to find out if they made their target for the day keeps them focused.
2 – Stay On Top Of Collections
If you do offer payment terms or bill certain clients and wait for payment, have someone assigned to collections who is ruthless about following up and getting the payments in. Set collections targets and quotas for your collections staff too.
Statistics from collection agencies say that for every month a payment is late your chances of ever collection the money decrease by 10%. At that rate you should be turning customers over to a collection agency a week or so before the receivable ages past the 60 day mark.
If you need a good collection agency who doesn’t charge high fees, has an excellent collection record, and doesn’t burn the bridge between you and your customer, send me an email and I will introduce you to my resource that I have referred to my clients for years.
3 – Negotiate With Suppliers and Get Competitive Bids
If you purchase products and services that a variety of suppliers carry, don’t be afraid to get competitive bids and to negotiate a good price. I don’t understand why the U.S. hasn’t taken a page from the art of negotiating from other countries. America seems to believe that the sticker price, or the quoted price, is the price. Negotiate anyway. It’s actually fun and can save you a ton of cash over the long haul.
The last time I bought a company car it was on a Saturday during the car dealer’s annual Labor Day Blowout Sale. My husband and I were the only customers on the car lot that afternoon. They had the exact car I wanted – 2 years old with 21,000 miles on it, and it had a sticker price of $29,500. My husband and I negotiated hard and actually walked away 5 times and had the salesman chasing us down the sidewalk. I was paying cash and trading in my 6 year old car. We got the car for $17,500.
Everything is negotiable, especially when you’ll be buying in volume for your business.
4 – Raise Your Prices To Cover Increases In Costs
Be vigilant about checking suppliers invoices to make sure you got what you ordered, and ask for updated price lists on a regular basis. If you miss the fact that a supplier raised their prices and you don’t pass those increases on to your customer by raising your price it will slowly eat away at your profitability. Also check the suppliers invoice for things like an additional or increased “fuel charge” or “surcharge” that can increase your cost without you realizing it.
Watch your overhead expenses too. Increases in costs of telephone and internet service, postage, utilities, insurance, etc. can erode your profitability. Updating your business cash flow budget to get an updated income planning target can help you decide when and how to pass the increases on to your customers and how much to raise your prices.
Hint: It’s much more palatable to customers to be faced with small increases several times a year than one huge increase all at once. That’s another reason to update that budget every 3 to 4 months.
5 – Be Selective About The Customers You deal With
Do business with high quality customers who not only appreciate quality products and services, but are also able to pay promptly and are more than willing to do so.
It’s the customers who always try to whittle you down on price or expect extra service at no additional charge who usually cannot afford to pay and they’ll make trouble and complain about the smallest things. You have a right to decide not to do business with them.
Don’t be afraid to fire a customer who is more trouble than the account is worth. It’s almost magical what happens when you fire a troublesome client. It seems like it creates a positive magnetic effect that pulls several high quality replacement clients into your business.
6 – Get The Payment Up Front
You can set your payment terms to be anything you want, so why not set them for what you really want – full payment up front, or a large deposit and then the remainder on delivery. There’s no law that says you have to offer payment terms to everyone. Many customers are willing to pay up front, and those are the caliber of customers you want to deal with.
Accepting credit cards is vital, and now that they have those nifty card swipe devices that plug right into your cell phone or iPad there is no reason you cannot accept credit cards, even without a physical brick-and-mortar store or office.
7 – Be Very Selective About Offering Payment Terms
There is no rule that says your company has to offer payment terms to everybody, or even the same payment terms when you do decide to offer them. Reserve the payment term privilege for selected high quality, long term clients who need and deserve them, but only so long as they pay on time. Don’t be afraid to cut off the payment terms for late or non-payment.
In addition, there is no rule carved in stone that says your payment terms have to be 30 days. Reduce your payment terms to 14 days if you want to. Whatever works best for maximizing your cash flow. Even better than offering payment terms, is to offer an incentive to pay Cash-On-Delivery instead. Your company doesn’t have to act like a bank and finance your customers’ purchases.
8 – Negotiate for Progress Payments
Take a page from the construction industry’s manual for very large jobs or orders and negotiate progress payments that cover your costs and a portion of your profits at each stage with a final payment due at the time of completion. This tactic can keep you from getting over-extended with your suppliers or subcontract labor only to find that the customer can’t pay.
Tip: Put the agreement with your customer in a written contract and have the agreement drawn up by a corporate attorney so it will stand up in court.
9 – Promote, Promote, Promote!
I would be remiss if I failed to mention that promoting your products and services on a constant basis is critical. If you aren’t consistently talking to your customers through advertising and promotion, I guarantee your competitors are talking to them. Use off-line marketing if it works well and gives you a good return on your investment, but definitely use internet marketing as well.
Almost every one of your potential customers who is out and about has a computer in their pocket or purse these days. It’s called a cell phone, and it has internet capabilities. People use their phones to shop for places to buy exactly what you are offering when they are on the go in addition to using their computer at home.
In addition, consumers expect you to have a website and be present on the internet promoting. If they look for you and don’t find you, they’ll move on to your competitors’ sites and buy from them instead. Learn to do keyword research and search engine optimization so your sites come up when consumers type in what they are looking for. If you are too busy to do it for yourself, or just want someone to do it for you because you can spend your valuable time more profitably by servicing your customers, and you need help with this, email me and I will refer you to a trusted resource who gets consistently excellent results.
10 – Consistently Measure Your Return On Investment (ROI)
Your hard-earned cash flow is too important to waste, so always measure your return on investment to make sure that your profits are adequate. This applies to measuring the ROI on your advertising as well as the ROI on selling your products and services for a profit. Nobody decides to start their own business just to pay the bills and make their suppliers wealthy. You need to make a good profit and pay yourself what you want and deserve to make.
The Cash Flow Mojo® software can help you increase the amount and speed in which cash flows into your business, and it only takes 20 – 30 minutes a week. You don’t even have to understand accounting to use it. You can take a tour of the software and even try it out for 30 days for less than the price of lunch.
Business cash flow is the fuel in the gas tank of your business, and I don’t want you driving around with the needle hovering on empty and not enjoying the ride.