Better cash flow in 2010
Jan 25, 2010
With clients not in any hurry to pay their bills and banks clamping down on firms that are non-compliant with their loan covenants, now more than ever is the time to do what it takes to improve your cash flow.
For starters, it is NOT all about collecting on AR that you’ve already billed— not to say that isn’t critical. It IS about shaving time out of every single aspect of your billing and collection efforts, as well as many other things...
Good cash flow begins with creating the proper expectations in your clients. Do you tell clients early on that you will need to get a down payment or retainer of some sort? You should if you don’t. And if so, are you ready to counter any objections that might occur related to how their “other providers don’t ask for that?”
Make sure the contract clearly spells out payment terms and consequences. Know what is in the contract and follow it.
Understand the peculiarities of each client’s billing preferences, requirements, and schedule. Use this information when billing time comes.
Get your bill out at the earliest possible moment. You cannot afford to wait around for certain people to take a week to review the bill. They have to know that they have about 24 to 48 hours to review a bill or it is going out. If they don’t want a potentially inaccurate bill going out to their client, then it is incumbent upon them to find the time to review it.
Send your bills electronically and via conventional mail. Why wait one to six days (or more) for an invoice to actually get in the hands of your client just because you only send bills out via snail mail? Sending them via e-mail potentially takes days out of the collection process.
Collect the easy money first. I got a bill from my HVAC contractor a few weeks ago. It was due and payable in 30 days. About a week after I received it, the owner of the company called to tell me he “sure would appreciate it” if he could get a check from me that day, even though it wasn’t officially due for weeks. The reason? I am a “good pay” client— one who normally pays early— and he knows it.
Put previously billed but uncollected invoice amounts in the “total due and payable” on your subsequent invoices. Many firms still don’t do this. I don’t understand why!
Get rid of the AR aging sprayed across the bottom of your invoices. When I see I am in the 0-30 category and there are three or four more categories listed after that, all it says to me is “you have lots of time to pay.”
Send out notices to collect late bills in a different colored envelope and on different colored paper marked “late payment notice.” And send out electronic reminders marked “urgent.” Let it be known in no uncertain terms that it is time to pay up!
Use vendor statements with every one of your vendors and suppliers. Your vendors and suppliers need to write down what discount and what payment terms they will offer you for the year. The implication is you are asking all of your suppliers to do this, and they better sharpen their pencils and give you the best deal possible.
Pay all your bills on the last day possible to maintain your perfect credit reputation, yet not so early that you have to go borrow money to do so.
There’s a lot you can do to improve your cash flow. Reduce your risk and sleep better at night by doing what you can to make things better.
Originally published 1/25/2010
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