We all know that cash is king, or rather – cash flow. In today’s volatile economic climate it’s more important than ever to have a good handle on your company finances. Without appropriate systems and processes to maintain positive cash flow, finances can quickly spiral beyond control.
Why money really matters
Cash flow is the heartbeat of any healthy business. It affects your ability to operate, to retain good staff, to invest, to meet your own financial commitments and of course, to grow. But did you know that poor financial management could also negatively impact your brand?
Brand perception is an integral part of your customers’ choice of your product or service above others. With a shift towards greater corporate accountability and transparency, it’s increasingly important to present your company as financially robust and trustworthy. (Tough qualities to embody when you’re continually chasing clients to pay, or dodging debt collectors of your own.)
Here are some tips to assist your business in effectively managing its cash flow:
Maintain realistic cash flow projections
Cash flow forecasting has an important role to play in a business’ ability to plan ahead and make sound business decisions. Having a good understanding of your company’s cash flow allows you to anticipate and weather shortfalls, and to invest appropriately when circumstances permit.
Simply put, cash flow projections are an estimate of how much money you expect to flow in and out of your business over any given period. For robust financial planning, projections typically span 12 months. Depending on the nature of your business they can also look ahead just weeks or months.
When it comes to finances, better the devil you know, as they say. So while it’s vital to maintain your cash flow projections, it’s even more important to have credible data. Unrealistic projections – although superficially uplifting – can quickly lead to financial wreckage.
Set pricing and payment terms
Whether you sell hand-made cards, Lamborghinis or legal advice, before you can expect your clients to pay you must ensure they have a clear understanding of your pricing and payment terms. In addition to clearly articulating your terms, you need to know they are both realistic and reasonable for your customers.
One mistake businesses commonly make is stating payment terms to customers on invoices, which are issued after the goods or services have been provided. A more proactive approach is to display this information in as many relevant places as possible: on your company website; in written quotes; in email signatures; and in early conversations with new clients. For further reading “Do you have credit terms for your business” offers more in-depth discussion on establishing and enforcing appropriate payment terms.
Make it easy for your clients to pay
It’s pointless expecting your customers to settle their accounts on time if the payment options you provide are too restrictive. The more convenient you make payment, the more likely it is your accounts will be settled. Understanding the preferred payment options for your clients is another important factor. For example, offering only online payments to a largely ageing customer base is likely to prove as effective as offering cheque-only payments to Gen Y customers.
Vigorously perform credit checks
New credit reporting laws (which came into effect in March 2014) make it easier for businesses to understand a client’s capacity to pay before they purchase. Although credit checks can be time consuming and difficult for small businesses to manage, performing checks on new clients can you save you trouble and lost finances in the long run. There are a variety of tools available to businesses including ABN Lookup, ASIC Connect, Trade Reference Checks and CreditorWatch which combines all three of these tools plus a credit report or score.
Don’t avoid debt collection
For many businesses the words “debt collection” conjures up stereotypes of big burly blokes with baseball bats. Times have certainly changed and debt collection doesn’t have to be unpleasant.
When chasing payments it’s critical you handle these sensitive conversations in a way that won’t damage your client relationships or your brand. For tips on talking to your customers about debts, read “How to make a debt collection call”.
The main thing to remember is to prepare before you approach debt collection activity. Finding the right tone is also important, firm but not aggressive works best. Knowing your facts, your rights and options can save you from awkward and emotional confrontations. It may make all the difference to ensuring your business maintains a positive cash flow.
Natalie Walker
Natalie Walker is managing director of Blitz Credit Management (www.blitzcredit.com.au), a technology-driven debt collection agency based in Australia. Her modern approach to debt collection and credit management services has been widely embraced by Australian businesses. She can be contacted at (08) 6140 2584.
