Monday, September 24, 2007

Collect Your Cash Faster!

Today's Wall Street Journal provides readers with three ideas on improving their collections of cash. As I've written in the past, money tied up in working capital is not available to grow the business.

The first idea was to "cut off rogue customers". If you provide open credit terms, you're a lender. You won't find a bank in town that will extend a loan to a business that won't pay it back on schedule. Why should you? Each day the collection of accounts receivable is delayed reduces your profit margin. As Jim Slack, Jr., of Slack & Co. Contracting, reminded readers, don't confuse volume with profits.

The second idea is to enlist the sales team. Nicholas & Co., a large food distributor, reduces its sales rep's commissions if their customers don't pay on time. I can see why a sales rep might not like this one, but it's improving cash flow. The company estimates that it has $15 million more in the bank each day as a result of faster payments. Again, don't confuse volume with profits.

The third idea is to formulate a real credit policy. Set up guidelines within your company and stick to them. It is acceptable to provide some clients with shorter or longer than others - you don't have to give everyone net 30. Consider your margins and the client's payment record in considering deviations from your policy.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans" and give me a call!

Tags : Wall Street Journal , working capital , cash flow , accounts receivable

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