Are Accounts Receivables a Problem?
There’s an old adage, “A sale ain’t a sale until the money’s in the till.” But increasingly, receivables are continuing to haunt businesses as their customers struggle in the much-awaited recovery. Slow-pay has become a habit for many customers.
As any entrepreneur knows, positive cash flow is paramount for business success. Poor cash flow is the No. 1 headache because cash is king. That’s also why many businesses have failed after their lenders and credit card companies abruptly slashed the lines of credit. It’s a contributing factor for the downturn.
Too much money that’s due you but left sitting in a customer’s checking account is a recipe for business death. Even if you finally collect, collection of old money costs you plenty and is worth less to you.
If you’re having challenges collecting money, true, you can blame the economy. But perhaps it’s worth your time to assess your invoicing. The structure and the verbiage in your invoices could be contributing to your woes.
If your invoice simply indicates “Payable upon receipt,” you might be encouraging your clients and customers not to pay on time.
Many businesses use invoices that take the place of statements. I wouldn’t insert columns that indicate “30 days”, “60 days” or “90 days” as an aging report. That’s the purpose of a statement if the invoice is not paid on time and to show a paper trail of the account. Otherwise, the psychological message you’re sending is “You don’t have to pay me in a timely fashion.”
Encourage a quicker turnaround by including the actual due date. That’s the seed you want planted in the mind of your customer.
In downturns, it’s usually a good idea to offer a 1-2 percent discount – if the profit is significant-enough and if your invoice is paid right away.
Another tactic, especially for consultants, is to present the invoice personally. In that way, you’ll get an instant report card on how the client feels about the relationship and your deliverables. (The ideal scenario is to work off a retainer.)
Besides, once you start making collection calls, you risk friction in what could be a good business relationship.
Finally, you might want to review your procedure for checking your prospective client’s credit and bill-paying history before you start your delivery process. Make sure your payment-authorization agreement includes a provision for the customer’s signature agreeing to pay the invoice, and other expectations. But that’s another topic in itself.
Oh, and start relationships on the right footing. In the beginning, get a written agreement on when payment is expected.
From the Coach’s Corner, here’s some related information:
How to Ease Debt-Collection Headaches
Step-by-Step Solutions for a Company Turnaround
Investor: Tips for Increasing Cash Flow, Profits
For a growing business, cash flow is crucial for profitability. That’s also true for the biggest companies and sectors traded on Wall Street – airlines, cars, financial services, oil or technology.
Every company is concerned about cash flow; but in 2008, 128 of the Fortune 500 companies in the nation had red ink. They include General Motors, Citigroup, Motorola, AIG, Merrill Lynch, ConocoPhillips, and Time Warner.
Cash flow enables you to make productive decisions to navigate and grow in the competitive marketplace.
No one knows that better than angel investor John B. Dimmer, the managing member in FIRS Management LLC, a private investment firm based in Tacoma, WA. He is also a director at three companies and has extensive management experience.
Here is a sample of his cash-flow solutions:
Q: How do you recommend predicting a cash-flow crunch in time to do something about it?
A: You need monthly income and expense forecasts that are established at the beginning of the business year. These must be realistic numbers that all of the management staff has agreed are reasonable. The second things you need are timely and accurate financial statements.
It is very much like planning a road trip in the car. You are trying to get from point A to point B, so you plot a route. You know that there are landmarks along the way. Every now and then you need to stop and check for these landmarks. If they show up where you expect them, you know you are on the right track. If not, you need to evaluate how far off course you are, and take corrective action.
Q: What strategic process do you recommend to evaluate the causes of cash deficits? What are the most promising solutions?
A: Getting back to our roadmap analogy, if you don’t see a landmark that should be there, or you find a new landmark that wasn’t on the original plan, you need a process for getting back on track. You need to take the time to evaluate where you are, where you should be, and what went wrong.
When you are off plan, there are some fundamental questions that need to be asked: Was the original plan flawed? Has there been a fundamental shift in the business such that the original plan is no longer applicable? Did we make an execution error? When, where, and what was it? Can it be corrected? What are the critical variables with respect to getting back on plan?
Usually this involves one primary variable, which is money. Whatever solution you take, you need to make sure you have enough money to fund it through implementation.
Q: How do you recommend finding creative ways to keep the business alive until sales pick up?
A: One of the mistakes I often see are entrepreneurs who staff their organizations under the assumption of optimum activity. The truth is that there are cycles to business. While not all business can use contract help, I like to try and have my companies staffed to a smoothed-average that is just above the troughs and just below the peaks. In this fashion, you can quickly and effectively reduce your labor costs in times of a slowdown without causing a morale-crisis with your permanent employees. I would also use slower times to beef up on training in preparation for when the good times return.
Finally, encourage your staff to make things happen. When we hit a slowdown in the car business, we ask our sales staff to get on the phone and start calling people. This usually starts with former customers and takes the form of a friendly call simply to inquire how everything is going with their car. Often times, you discover that they love their car, and they have a friend who is interested in buying a new car. Sometimes you find that they love their car and they want to buy another. And sometimes you find that there is a problem. Problems, however, create opportunities. If you invite them to come in, and then solve their problem, they will remember that you were proactive. They will tell their friends about their experience, and their friend will come and see you for their car needs.
Q: What about negotiating with investors or other financial supporters until cash flows increase?
A: Investors hate bad surprises, especially when the surprise is accompanied by an emergency need for funds. Assuming you created the roadmap, and are tracking your progress, you should be able to see the bump in the road well before you actually hit the bump. Most investors are business people who have been down the road before and know that everything is not smooth sailing. They will appreciate the fact that you have a plan, that you are tracking your results against the plan, and that you have foreseen a problem before it hits.
Generally cash flow problems mean you need to borrow more money or raise more equity. If such is the case, have your presentation for raising new money ready to go so that you can transition from the communication stage to the pitch. Be humble, because the last thing I really want to hear as an investor is how smart you are and how great everything is going when, in fact, you are off plan and running out of money.
Part of the negotiation is an acknowledgement of the problem, a rational analysis and a well-crafted solution. You, as the owner, may need to take a bit of a hit in order to implement a solution. This might come in the form of a down round of fundraising where you are force to make up the dilution to the other shareholders out of your own holdings. Know what you are and are not willing to do. If you are forced to give up something to keep the company alive, figure out how to get it back, perhaps via options, if your revised plan was the proper call and the company comes roaring back.
Q: How do you know when it’s time to close or sell the business?
A: I always want to stay in the game, even when it is two outs in the bottom of the ninth inning, you are down by five runs, and the count is full, there is still a chance you can pull off a win. Nonetheless, I try to keep entrepreneurs from getting in so deep that if their company fails, they are wiped out. I’ve been involved with two companies where I had to tell the entrepreneur that they shouldn’t put any more money into the operation.
In one of those instances, we were able to locate a buyer for the company. The purchaser was a publicly traded entity that, since the purchase, has taken a bit of a down-turn, so the jury is still out as to whether the entrepreneur will come out whole. Nonetheless, it was a better option than closing the doors. With the other company, we have what we feel is great technology; we just can’t seem to get a revenue stream developed. We are in the process of procuring a patent, and think that it will have good commercial value once the patent is issued. Accordingly, we have put the operational aspect of the company in suspense, and are pursuing acquisition opportunities. The biggest risk on this strategy is a failure to cut a deal followed by an impotent patent.
I never advocate simply closing the doors. If you are doing proper planning, you should see the problem coming down the road. There should always be something saleable about your company, even if it is less than a full recovery.
From the Coach’s Corner, Mr. Dimmer’s other tips:
- “How to Attract an Angel Investor” – www.bizcoachinfo.com/archives/1367
- “How Investor Has Fun in Business and Technology” – www.bizcoachinfo.com/archives/1272
Five Tips to Generate Short-term, Long-term Sales
Q: My sales were down in my small company last year and so far sales are flat, too. Help? What can I do?
A: You can do plenty. Before you get hung up on social media and viral marketing, decide priorities. It takes time to tweet and blog. If you have to decide whether to see people in person or do the Internet thing, go personal during the daytime. Spend your evenings strategizing about the Internet. Go back to the basics.
Organization. What does your desk and car look like? Start and maintain a master to-do list and put papers away in a logical order. Calendars are great; otherwise use your list and update it everyday. Projects left undone should be moved to the following day.
Starting on Monday, you should review your day before shutting down each night. That means assess your performance at the end of each day and evaluate what you did well and what you could have done better. Then, review your plans for Tuesday. Follow this procedure each day.
By Thursday, you should develop an overview for the following week. On Friday, finalize your plans for Monday and so forth.
Regarding clutter, if you haven’t used a piece of paper for six months, ask yourself when you will need to do so. Get rid of unnecessary papers and post-it notes. Keep receipts for tax-filing purposes.
Never handle the same piece of paper twice, and prioritize. Handle all important tasks, and answer e-mails and letters promptly. Some details interfere with more pressing deadlines; put such reminders of those tasks in a “Priority B in-box”. Deal with those at the end of the day or schedule them for processing at a specific later time.
Avoid deadlines; they’re a huge time-waster.
The first hour of every day should be spent on tasks that you dread. If you handle unpleasant tasks first, the rest of the day will be a breeze.
Don’t let people randomize you. If they don’t consider your time and energy important, make sure they don’t. Don’t react to annoying people. First decide whether you need them to operate your business successfully. If you do, remember this mantra: “No matter what there are no big deals.” Save your energy to enthusiastically serve your customers. And remember it’s never okay to get angry in business.
My important vendors who perform inadequately get a copy of my firm’s 60 ground rules for client service, 60 Ground Rules for Effective Client Service. I tell such people that I value them, but I inform them what I expect in the way of good customer service. If not, I quietly give others my business and I treat good vendors as though they’re valued customers or strategic partners.
Use filters in your e-mail so that they land in your e-mail in an organized fashion. If you’re a sole proprietor home-based business, beware: only use the automatic reply “out of office” if you don’t care if people know you’re away on vacation or out-of-town on business.
Exercise regularly. Even just taking walks will clear your brain and refresh you.
Set sales priorities. Review your branding slogan. Do you use a phrase of three to five words that tell your story? Mine as a business-performance consultant and columnist is, for example: “Proven Solutions for Maximum Profits.”
Develop benefit statements that best describe your features.
Devote at least 20 percent of your time each day to making sales calls on ideal prospects. If they’re busy, try again in a week. To lay a long-term foundation for growth, devote another 10 percent each day to marketing, networking or shameless self-promotion. In that way, you’ll be sure to line up business as projects expire.
Look for opportunities to express an attitude of gratitude and an attitude of service.
Without disrupting your profit margins, give customers unexpected 10 percent in added value. Regularly thank your customers in your routine e-mails and faxes, and send hand-written thank you notes via snail mail.
Prevent buyers’ remorse. A statement I use to prevent buyers’ remorse: “You’ll be very pleased with the strong results.”
If you make a mistake, flaunt it. It doesn’t hurt to use self-effacing comments that demonstrate humility. But avoid asking for forgiveness. You’ll find customers will laugh off your mistakes, especially if you are organized and efficient 99 percent of the time.
In a subtle manner, solicit compliments. When you receive a compliment, get referrals: “What are the names of two people just like you who would benefit from this product (or service)?” Don’t merely ask: “Can you refer a customer to me?”
Personal and business marketing. If you don’t have time to write a business or vision plan, set short-term and long-term goals after taking inventory. On a piece of paper, take an hour or two to list your strengths and weaknesses. Remember that every strength can be a weakness and that every weakness can be a strength.
For example, are you known for being assertive or do you occasionally go overboard in being aggressive? The ideal is become assertive. Think about what you say before you say it. Think about what to do before taking action. Remember the ramifications of each if you don’t.
Hone your strengths and alleviate your weaknesses.
Entertaining clients and customers. Pay for at least half the lunches. When the customer or vendor pays, be mindful of her/his budget and don’t order the most expensive meal.
Receivables. Send out invoices right away. If you bill by retainer, present them in-person to your clients each month.
Do customers take you for granted? If so, develop a strategy to inspire their confidence in you and your business. If that fails, start looking for prospects to replace them. If customers suffer from poor cash flow make certain they pay your bills before they pay others. Treat every communication as though it’s an event. Dress professionally and be on time. Make sure they know you appreciate the opportunity serve them.
Treat your bills to them and their funds as investments in their business. Keep all commitments. Prevent your customers from suffering negative surprises.
Remember, about 18 percent of Americans will only buy the cheapest products and services. Such customers are not loyal and they’re prone to return products.
The other 82 percent of customers will spend more money with you and pay on time when they have five positive motivating buying perceptions about you:
- What customers think of you personally – are you prompt, organized and service-oriented?
- Image of your company – does it have a professional appearance?
- Product or service utility – customers want to know how they’ll benefit from you
- Convenience – can they reach you easily or conduct business without any hassles?
- Price – are your prices reasonable?
The bottom-line: remember to practice empathy and the Golden Rule. What goes around comes around. Oh, and now’s the time to focus on the Internet thing. Good luck!
From the Coach’s Corner, be sure also to budget time to read for business and personal pleasure.
And send articles that pertain to your customers’ businesses: “When I spotted this article, I thought about you.”
Customers appreciate well-read businesspeople. In this way, you’ll become an invaluable go-to person.