Are your eyes on the company cash?

A key element to business sustainability is having the best cash flow model possible.

Every owner, CEO, or entrepreneur should invest ongoing time to determine how to maximize their company’s cash flow.

Managing cash flow has to be built around the foundation idea of “what works best for the company” and not “what works best for the client.” This is not to say it is a “win-lose” proposition, it isn’t.

How do you effectively manage cash flow? How do you make this a “win-win” for your company and your clients?

Kraig Kramers, while leading Snapper the lawn care company, required a daily cash report at the start of each day. He did this for two reasons. First, he wanted to send a message to every employee that he was monitoring cash flow and that he expected his employees to be on top of it as well. Second, he understood that cash was critical to business survival and growth and that this responsibility could not be delegated.

There is risk when any company has nothing in writing regarding extending credit or making collections. Higher risk occurs when there are policies and procedures in place and they are not executed; this happens far more often than people like to talk about.

Managing cash flow starts with the creation of credit and collections policies and procedures. These are not essays. Your documents need to explain what your internal program is about extending credit and collecting money.

But a policy and procedure without an owner is nothing more than ink on paper in a binder or a filing cabinet, not likely to see the light of day often. Someone in your company has to “own” the policies and procedures of cash flow and make sure that they are enforced every day.

Many executives believe that what is normal and customary for their industry must be adhered to when it comes to invoicing and collections; otherwise clients will take their business elsewhere. In other words, if your industry traditionally pays invoices in 90 days, you have to accept those terms.

This is not accurate. I know of instances where owners hold their client’s feet to the fire and demand to be paid faster than industry standards. Terms of payment are negotiable.

When you and your sales team are out selling to prospects and to current clients, are they taking the time to properly explain what your company’s receivables policies are? It wouldn’t be a bad thing to review these internal policies regularly to avoid misunderstandings with the sales team.

One way of reducing risk is to determine credit worthiness of clients and assigning credit limits to each client. Since the ability to pay by company can change dramatically in a very short period of time, scheduled credit reviews are essential. Credit insurance is available at a relatively low cost to mitigate risk of default or short payments.

Is your company making it easy for your clients to pay your invoices? Are you waiting for checks to arrive in the mail when your buyer would prefer to pay by credit card or by wire transfer?

On the other side, are you mailing checks for payment of your bills or would you rather pay electronically or via credit card? Which method would keep cash in your bank accounts longer?

Is someone following up to insure that your invoices are arriving and given to the right person at each client?

Misdirected invoices, whether emailed, faxed, mailed through the Post Office or sent via FedEx, are just one of many reasons why a client is late in making a payment or payments.

Is someone making the necessary calls to clients to proactively check on the status of payments? For example, if a payment is due within five days, a phone call from your company to check the status of the payment would not be out of line. In fact, it would be a wise use of resources.

Sending “past due” notices and hoping that the client will pay outstanding invoices immediately doesn’t work. When previous “past due” notices have been ignored, sending more may well be a waste.

In some companies, a lower level person is given the task of making “collection calls.” Because it is unpleasant to do this assignment, they may put it off until the end of the day, more towards the end of the week. These calls inevitably end up in voice mail, hoping that the call will be returned. They often are not.

The owner, CEO and entrepreneur needs to take an active role in ensuring that the cash flow of the company is protected and positive. This may mean changing the business model; it may mean finding better clients, and moving away from clients that cannot pay their bills within set deadlines. It may mean that company will need to address gaps in policy and in execution. Poor cash flow happens because of poor design, lack of policies, lack of communication with clients and poor or non-exist execution by staff.

As the leader of your company, you own cash flow, or the lack of it.

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