It has often been said that if you collect early and pay late chances are you will have positive cash flow to deal with your debt. Certainly, this statement is a great start when developing a cash flow strategy but a business owner needs to consider many factors when analyzing cash.
Cash is king and a company must consider the impact on the cash balance in every business decision. Should I extend terms to my customers? Do I offer my customer a discount for paying COD?
Do I offer a quick pay discount for clients who I have allowed to pay in 30 days? Should I change my credit terms to 2% to 10%, net 30? Should I pay my bills on time or do I delay payments to all of my vendors by 10 days?
Customers can be referred as “Clients” making it a professional approach
Should I buy 2 months worth of inventory and prepay the order because my supplier is offering an extra discount of 10 percent? Should I lease or pay cash for the new electronic system? The above question is just a sample of the hundreds of questions which must be answered to manage your cash. If you make the correct decisions, you could find yourself having positive cash flow in order get relieved out of any debt you are struggling to payback. You do not need software to do this exercise as an excel spreadsheet will be just fine
Make an income-expenditure List to monitor your cash flow
Virtually it’s impossible to keep all of this information and variables in your mind. Therefore, it is imperative that you build a cash flow model and project your source and use of funds for minimum of six months. You do not need a complex software to do this an excel spreadsheet will do just fine. Start with your beginning cash flow balance and add projected incoming cash and subtract your projected outgoing cash and you will see where you stand for the week. Do the same for the next 26 weeks and make sure you factor in items such as payroll, tax payments, rent, down payment on the new office equipment, the upcoming travel
This is a dynamic exercise so you will need to make changes to the spreadsheet when your predictions are incorrectly or an unexpected event happens such as your largest customer going bankrupt and not paying the $75,000 invoice which was due last week. If you make the preparation of the cash flow projection a normal part of your business routine, you will minimize the chances of being blind-sided. This will reduce the risk of forgetting to make the monthly sales tax payment or not having money allocates to do so.
In addition, to collecting early and paying late, prepare your cash flow statement. As far as collecting discounts as cash are concerned COD or prepayments by customers. Looking into clients pay via ACH or allowing you to draft their bank account. This will eliminate the old check is in the mail excuse and even if the customer did pay on time as promised, this will eliminate several days of transit time for the mail to arrive. On the accounts payable side see if your supplier can give you extended payment terms ‘hungry’, anxious suppliers to get more business may be willing to extend payment terms from net 30’to net 60. If you are an inventory based business see if your supplier is willing to give you the inventory on consignment. The above, is a sample of ways to improve your flow.
What do you do if despite your best efforts you find yourself having negative cash flow? What do you do if your creditors have lost patience and are calling every day for payment on a bill you should have paid 40 days ago? What do you if your vendor has hired a collection agency to pursue payment or worse, has filed a lawsuit against you? The answer is to hire a professional debt relief company to help and manage your debt settlement which help you deal with the above problems while you deal with running the day to day business.
Professional debt relief companies can help you negotiate payment reductions on the past due bills and many times terms on the reduced balance. Since 1997, Business Advisory Center has been helping owners get out of debt and improve their cash flow.