A lot is made of cash flow and one has to take into account the seriousness of cash flow. Earlier in my working life I was firmly of the opinion that the whole business mantra was based on getting your service/product out there and that the rest would take care of itself. The longer I have operated the more important have I realised the value of cash collection and cash control. Cash really is ‘King’. Without a thorough and more rigid process of cash collection a business is dead or will be dead within a matter of time. There is no simple way of putting this.
Companies do not realise that this concept is as important as creating new business. Once the business has been created and delivered there needs to be a process to collect the cash and in a timely manner. 90 day terms for smaller transactions is simply not acceptable. Pre or part payment is the ideal scenario, if that is not possible then one needs to stick as close as possible to net 7 as one can. Admittedly most of my clients are on a net 30 payment basis, however for larger and more lucrative deals we can allow net 45/60.
The problem really arises when a net 7/14/30/60 is not actually what it seems. A net 30 can easily be stretched out to a net 50 and thus you becoming the bank for a particular client. This is a well known trick and will only serve to put high levels of pressure upon your organisation. Companies tend to string it out deliberately and this become a negative cycle as companies invariably do it to their suppliers and it becomes a chain with people at the end of the chain suffering incredibly.
Allowing late payment then becomes a habit and soon enough you become the bank for your clients. The net effect of this is the pressure on the cash flow and cash cycle for your own business. We remain so eager to please our clients that we forget the negative impact of late payments and a lack of credit control.
The net effect of not controlling our business cash flow and credit control will mean serious issues on ones business. Cash is needed for various aspects of any business and slowly things start to become very tight unless cash is collected and controlled efficiently. Myself having been a victim of poor cash flow, I am lucky to be here still.
Banks in particular want to see a positive cash flow and in particular a company that manage the process effectively. When seeking to factor debts (which is necessary for certain growing businesses) the bank will not only assess the cash flow, but seek to micro manage it on a monthly basis. They want to lend to those companies that can manage the collection of their monies.
Top 5 tips for Credit control and Cash Flow Management:
1. Project your figures on a monthly basis and asses your cash flow monthly
2. Get an external eye on your figures and debtor days on a quarterly basis
3. Set out a rigid process of collection of cash on a monthly basis, proactively dealing with ‘problem companies’
4. Have in place statistical data to analyse the way in which your business runs from a financial perspective
5. Put the companies’ needs before your own! Without the company there is little left!
