A similar sign hung over the cash register at a pool hall I frequented in college...it is also the title of a book originally published in 1966. Cash is what your employees and vendors both expect. And today, more than ever, cash is vitally important to your business. It is and always will be the life blood, the oxygen that allows your business to survive and thrive!
From Wikipedia, the free encyclopedia ***"Cash is king" is a cliched expression sometimes used in analyzing businesses; it refers to the importance of cash flow in the overall fiscal health of the business. The phrase is a favorite of Alex Spanos and has sometimes appeared in Motley Fool articles and commentaries. It describes the importance of sufficient cash as an asset in the business for short term operations, purchases and acquisitions. A company could have a large amount of accounts receivables on its balance sheet which would also increase equity, but the company could still be short on cash with which to make purchases, including paying wages to workers for labor. Unless it was able to convert its accounts receivable and other current assets to cash quickly, it could be technically bankrupt despite a positive net worth.***
So, what can you do today to increase your cash and ensure that your accounts receivable (A/R) turns into banking deposits sooner rather than later or not at all? Here are some ideas to get you started...these simple steps helped a client of mine reduce A/R by over $100,000 in 2008.
-Pay attention! Simply put, meet with your staff at least weekly, if not daily to review A/R, credit policies, collection issues, etc.
-Set daily goals for collecting. If your goal is to maintain a Days in A/R of 30 days, and your average monthly revenues are $100,000, then your staff should be collecting almost $5,000 each and every day. Therefore, there should be $5,000 in the bucket on Monday, $10,000 on Tuesday, $15,000 on Wednesday, etc. Don't wait until Friday to check the bucket and be disappointed there is only $10,000 versus the $25,000 you expected. Be sure to find out current Days in A/R stats for your industry and strive to stay within them.
-Manage by exception. Call the most significant offenders, maybe the top 20% who owe 80% of your A/R.
-Increase statement frequency, maybe from once a month to every 2 weeks. You probably know the positive effect of paying a mortgage every 2 weeks, what could this same principle do to your business?
-Increase the "notice factor" of your statements by printing them on brightly colored paper. This has been a long standing procedure in collection companies. Maybe even consider sending them in a large 8 1/2 by 11 envelope.
-Always get to know the person who pays the bills. Don't just call them on collection matters, but call and thank them for payments. Remember, "You collect more bees with honey."
-Add additional payment methods and incentives. Take credit cards. Offer discounts for early payment and penalties/interest for late payment.
-Establish payment terms that are favorable to you. Always strive for the longest payment terms possible with your vendors and the shortest payment terms possible with your customers.
Money in the bank is what counts! Make collecting your cash a top priority. Do something today to improve your cash position!
