@font-face { font-family: “Calibri”; }@font-face { font-family: “?????? Pro W3”; }p.MsoNormal, li.MsoNormal, div.MsoNormal { margin: 10pt 0in; font-size: 12pt; font-family: “Times New Roman”; color: black; }div.Section1 { page: Section1; }
Most business owners are always looking for ways to improve cash flow, especially in this sluggish economy. The best place to tune up your cash flow is at the source: your customers.
Check your receivables
First look at when your customers are paying you. Improving accounts receivable (A/R) collections is generally the most immediate way to improve cash flow. Review industry norms when it comes to payment schedules. If you”™re requesting payments later than your competitors are, it may be time to shorten your cycles to get money coming in faster. Step carefully with your most important or largest customers, however. You don”™t want to rock the boat unnecessarily.
Reevaluate your technology, too. Many, if not most, companies have implemented an automated collection system that generates invoices when work is complete, flags problem accounts and generates useful financial reports. If your A/R system is out of date or underused, your cash flow may suffer from a lack of pertinent information and poor follow-up.
A word on collection agencies: A customer sent to collections is likely lost forever, plus unlikely to serve as a positive referral source. And third-party fees may consume much of the collected amount. So customers should be sent to collections only if these consequences are acceptable. For example, if you have chronic collection problems with a customer, you may be better off collecting what you can now through an agency and not having to deal with the customer in the future.
Come up with a set of “must send” criteria that soundly and objectively drive your decision. Also, you typically may write off an uncollectible outstanding debt as an ordinary business expense on your tax return as long as it”™s properly documented.
Strengthen your relationships
It”™s not unusual for most of a company”™s cash flow to originate from a handful of key customers. Ideally, this wouldn”™t be the case ”“ you would have a large stable of dependable payers that rarely complain and speak highly of your products or services at every opportunity. But, particularly for smaller businesses, this ideal is hard to reach.
For this reason, another way to promote cash flow is to strengthen your relationships with key customers. You may not necessarily increase your flow, but you may stabilize it. For example, look into whether you can offer value-enhancing add-ons (helpful information, discounts on other services) to select customers. Also, offer rewards for referrals.
Special (lower) pricing for key customers is another way to keep your best payers in the fold. But don”™t cut margins so low that even the slightest mistake could trigger a financial disaster. And avoid price wars with competitors, because such endeavors can ultimately lower profitability even if you”™re the “winner.”
In addition, refocus on customer service. Although maintaining and, if possible, boosting cash flow is important, be sure to consider how any related decision will affect customers. One way to ease procedural or service changes is to empower employees who most frequently interact with customers with the authority to make things right should confusion arise or a mistake occur. This is something that often falls by the wayside when, for example, businesses make staffing cuts to lower payroll costs and preserve cash flow.
Market yourself wisely
Another group of customers who could help your cash flow aren”™t really customers at all, at least not yet. They”™re prospects, and to haul them in you”™re going to need marketing. Before you start, however, pinpoint the type of prospects you”™re looking for. Specifically, estimate what your net profit will be after subtracting your cost to serve a prospect.
Prime targets should be those who will likely buy a substantial volume with enough frequency to provide a steady revenue stream over time rather than those who may be one-time or infrequent buyers. They also should be potential targets for cross-selling other products and services.
Naturally, you”™ll also need to conduct a cost-benefit analysis of any marketing campaign.
Recently, social media platforms such as Facebook and Twitter have beckoned companies as low-cost marketing tools. And, indeed, they can be useful in maintaining your visibility with existing customers, assuming they”™re tech savvy, and promoting your knowledge in your field. But generally, social media is, by definition, a “mass communication” platform. So it isn”™t likely to snag you that one big customer. For that, you”™ll need a more carefully targeted campaign.
Norman G. Grill Jr., CPA, is managing partner of Grill & Partners L.L.C., certified public accountants and consultants with offices in Fairfield and Greenwich, Conn. Reach him at N.Grill@GRILL1.com.
