Improve your cash flow – Sam Harrop

One of my favourite sayings is that turnover is vanity, profit is sanity and cash flow is king.  Cash is like oxygen for your business, without it your business will not survive very long.

Unless you are in the business of lending money I am going to challenge you as to why you do.  It is surprising how many business have large amounts of money outstanding and overdue.

Let’s start with overdue, many business owners are scared about chasing up money that is owed to them because they are worried that they will offend their customer, well first of all a person that doesn’t pay their bills is not a customer but a thief.

Decide on a process that you are going to follow to collect all the money that is owed to you, depending on your situation it may include a reminder phone call and getting a commitment from your “customers” as to when they will pay you which can then be followed by either another phone call or letter.  It is very important that you document these various steps, who did you speak to, what date and time was it and what did they agree to do. For delinquent payers or people who really don’t respond well to these first steps we have developed a simple but effective letter which basically states, please pay us by this date, if you haven’t paid us by that date don’t bother contacting us, please deal directly with xyz debt collectors.

Another important step is to revise your terms and conditions, stop offering terms to everybody that does business with you, make sure you can accept credit cards, even those that charge a higher fee, I can assure you, you are better off having the money in your account, also think about how much it costs you in terms of time chasing money that is owed to you.

In the occasional instance where you do need to offer terms, make sure that your client fills in an application form which amongst other things should include them giving you permission to do a credit check on them, be able to contact a couple of references and also make the person who is applying for credit personally liable for the debt should the company not pay.  Unfortunately there are still a few people out there who do not have the integrity to pay their bills and they can and do create untold hardship for business owners.

If you are still hesitant about this strategy, let me put some numbers to this equation,

Sell Product                                                                                $ 1000
Cost to produce and make the product available                       $ 800
Profit                                                                                            $ 200

Now the person doesn’t pay, you will now need to sell $ 4000 worth of product just to get back to where you were never mind the additional costs involved in selling those extra quantities of product.

On a positive note, you know those customers that do pay their accounts on time, are pleasant to deal with and are great for your business, give them a call and thank them, possibly even consider buying them a small gift and hand write them a thank you note saying that you really appreciate how quickly they pay their bills.

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