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Your plumbing business is not a bank. But when you are giving terms to customers that exceed what you get from your suppliers, you become one. And every time that someone does not pay you, you are a bank. But unlike a bank, your company does not have the resources to continue paying employees and suppliers when payments slow down.
On every client list there are a handful who do not pay until you call them, who tell you the cheque is in the mail, or who simply cannot pay. Having receivables arrive at the right time is the best way to ensure you can pay staff, contractors and suppliers on time—which is key to keeping your business running smoothly.
How?
Manage your cash flow
Entrepreneurs understand that a $10,000 sale results in a nice profit. But most forget that the suppliers will be knocking at the door looking for payment long before the $10,000 comes to your bank account. Knowing the payment cycle of your customer and your supplier is important. Knowing what your cash flow will be on a day to day and week to week basis is more important than any profit and loss statements produced three weeks after month end.
Invoice on time
I do not have enough fingers and toes to count the number of times that companies in financial trouble were weeks behind in sending their invoices. This stack of paper is cash almost on hand.
Invoicing on time might mean as soon as a project is finished, or, in some cases, it might mean requesting a deposit from a client at the beginning of work to get cash flow going early on.
Make it easy to pay
Accepting multiple methods of payment is one way to accelerate receivables. Do you accept electronic payments? Or, farm animals in exchange, only? Cheques only? Credit cards? Bank drafts only?
Be disciplined
Better cash monitoring, collections and invoicing are all part of the same administrative function that must be done on a regular and frequent basis. Getting behind is death by debt.
I have taught many business owners the strategic importance of cash management. If you need a template to manage your cash, email me at [email protected] or [email protected].
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.
