CEO Hint #2: 5 Things to Improve Your Cash Flow

Cash flow is important anytime, but especially in today’s economic environment of tighter credit.  We know today that the credit crunch has affected the economy and that banks are now able to pick and choose who they extend credit to, how much credit they extend, what conditions they extend it to, and how they can pressure you the CEO, CFO, or owner of the business into improving your financial results to comply the banking arrangements.

Here are 5 hints to Improving Cash Flow:

1. Invoice ASAP & Follow up next day to double check client has received the invoice

• Get in the habit now of invoicing as soon as the job is done and getting it into the hands of the customer electronically, either by fax or email or if handwritten invoices spend the time after delivery to now write the invoice earlier in the day before delivery, rather than “I’ll invoice you later.” Most accounting software from Simply Accounting & QuickBooks to Microsoft Great Plains, Sage ERP, to Oracle and SAP the email invoices feature can simply be turned on.

• Now considered a best practice, be proactive you don’t want to find out 30 days after the invoice date that the customer hasn’t received it.  Customers may find this irritating at first, but you can always tell the customer that you are just trying to ensure they are happy with the product or service they received and that there aren’t any issues with the invoice.  You can say that you’re trying to improve your customer service at this time.

2. Ask for a Retainer or Deposit

• Depending on the industry or whether it’s a new client or old this is one worth trying as if you can get a deposit for goods/services ordered then paid in installments is better than waiting for the payment to come 30 days after the job or product has been delivered.

3. Offer Cash Discounts for Quick Payment

• If you haven’t offered a cash discount for payment within 10 days, ie. 2% 10, net 30 means that the customer gets a 2% discount off the total invoice if  “they pay within 10 days only” or the customer has the standard of paying within 30 days.
• Think of it as a sales discount you’re willing to give to be able to get the money in your hands earlier rather than someone else’s hands.

4. Become a Pit Bull of Receivables (Keep after them!)

• Start reviewing your aged receivables reports weekly if you don’t have a Key Performance Indicator system (KPI’s for short) and seeing if you have late paying customers how late they are get your receivables people to start action right away by either emailing them right away then calling them the next day.  Some customers need to be reminded, that’s why if you’re proactive and invoice right away and follow up to ensure they have received the invoice and processed them you’ll have to do less collections work in the end.
• Why wait, it’s your money?

5. Pay Invoices Only When Due

• Review those vendor contract terms to see when those invoices are actually due for payment rather than paying them right away because you want to get them out of the way.
• Setup online banking payments so you can schedule when payments are due and you are able to download electronic information to your accounting software.

In summary, these are some quick things to implement to improve your cash flow and also at the same time improve your customer service and satisfaction.  Protection of cash should be the CEO’s biggest concern nowadays and any ways to improve the order to cash cycle should be attempted.

Written by Richard Wong, CMA     Email: rwong@firstchoicecapital.ca