Monday, May 11, 2009

Creating positive cash flow is a vital cycle

Making a profit is vital to a business. That is obvious to all. Getting paid is even more important. At my company we concentrate on getting paid quickly and creating positive cash flow. We have regularly scheduled meeting, every Wednesday morning, which includes all salespeople and our bookkeeper.

The bookkeeper gives a report of all accounts that are at least 30 days old. Each respective salesperson must report to the group the actions, if any, he/she has taken to collect the account. This permits all of us to learn which accounts are slow pay and which accounts do not pay. We have worked diligently at this and our collection period is currently averaging 32.3 days from the date of invoice.

A “third party” approach to collecting works well. We use a “third party” approach to help collect debts. For example, I say to a debtor “My dad always said that people that stay in touch with you will always pay you, but those that do not will always bat you out of it.” By referring to a third party, in this case my father, the message is clear, but not taken as a direct attack. Invariably the response is “I won’t beat you out of it. I’ll pay you.” This response allows you to set deadlines for payment without appearing attacking. The debtor has already promised to pay you. You are merely asking when they will pay you.

Another tool we use to increase our cash flow and reduce our days outstanding is to get deposits when taking the order and collecting the balance immediately upon completion of the job. Most customers are prepared to pay upon completion. Ask for the money.

Good cash flow allows you to pay your vendors within a discount period and take a discount from them. Ask you vendors for better terms. They will increase the discount amounts if you just ask. Two percent 10 days, 1 percent 30 days, net 45 days are all available in these times.

Creating good positive cash flow is a cycle that is vital at all times.
—Bill Evans, president, Evans Glass Co., Nashville

1 comment:

Anand said...

Yes, the importance of cash flow, collections have been rightly emphasized. Role of collecting advances is crucial in keeping up the cash flow. In our own example, as a Glass fabricator in Bahrain, we had faced multiple operational problems, but, we paid attention to customers' collections and Partial advances from small orders. So far, this has helped us keep our head above waters.