General Business Tips

Improving Your Cash Flow

Here are some tips you can use to speed up your cash flow and, at the same time, minimize aggravation to your customers.

Although it doesn't help with difficult clients you already have, the best way to ensure a good paying account is to check them out before you sign them up. That way you can weed out customers who are turning to you for reasons such as the refusal of their old sweeping contractor to carry them any longer. In the course of soliciting new business, always ask who has been doing the prospect's sweeping previously. If you have doubts, check with that contractor to confirm that the reason for their change isn't to dodge an existing account balance.

Don't care to call your competition? Another alternative is to check with other vendors who supply the prospect. If you still have doubts, you can obtain a credit report on any business or individual for about $20. For more information, call one of your local credit reporting agencies.

Some payment schedule hassles can be avoided by better communication up-front. When you add a new account, be sure to explain your payment policies thoroughly, then don't hesitate to have them sign a strongly worded contract. You might even have an especially ironclad agreement which you use only for 'doubtfuls.' If a prospect balks at a clause specifying that they must pay attorney's fees in the event collection is needed, for example, it may be because they know that the clause will soon affect them.

Communicate clearly, both ahead of time and when payment is not forthcoming, that you are a company where cash flow is important. Emphasize that maintenance of a good payments position is what enables you to keep a line on your rate.

There are several steps you can take to encourage speedy payments from existing clients. One is to invoice in a timely manner. If you now bill monthly, you may want to change to bi-weekly for some clients. More hassle, certainly, but perhaps worth it in the long-run. If you have a computer, consider using a program designed for invoicing. Get one which keeps track of account aging for you.

In some circumstances you may even be able to arrange for billing in advance. For example, if your payment policy is 30 days net and a client must pass the bill along to their parent company - which routinely keeps it until 60 or 90 days have passed - you may be able to strike a deal whereby you invoice before scheduled services have actually been performed. In effect, you arrange a retainer based upon the typical number of sweeps performed. Any time extra services are needed, just add them onto your next bill. That way you can ensure that you receive prompt payment for at least the majority of your work.

Offering deals can also pay off. These take two basic forms, penalties and credits. The former is less 'client friendly' since you tack on a penalty if the bill isn't paid within your stated payment period. Studies show that it is usually better to raise your rates instead. You might increase by 10%, then give a well publicized 10% reduction to those who pay promptly. The advantages of this method are that your customers will see it as a discount; they pay either your normal rate or even less. Plus, many accounting managers like to show that they are taking advantage of discounts. If you select this option, be sure to stress your discount process when you quote new accounts.

When you can't get the money due you, the first course of action for many contractors is to call on the phone. To maximize the effectiveness of this technique, don't wait very long after your payment is due. Be polite and considerate in your calling, but also firm and no-nonsense. If the person you talk with is unable to tell you when your check will be forthcoming, ask to speak to a supervisor who can. Request a specific date when your money will be mailed.

Don't be rude or sarcastic, though. This typically won't help get your check any sooner, but it will serve to alienate both the person you speak with and the company itself.

It's much better to keep an open dialogue. Be creative in developing a payment schedule that they can meet and you can live with. Your clients represent both your current business and a network of future referrals. Once their cash flow is back to normal, you can bet that they will remember how you treated them when they were in trouble.

A last option is to discontinue your service. Although it's difficult to do so, especially since you will often be moved to the bottom of the payment list, there is a time when you must cut your losses. When you decide to stop sweeping for them, remain polite and don't burn your bridges. This keeps your options open. If the business is in real financial trouble, the manager you are dealing with may soon be working for another company, one which is solvent and needs a sweeper.

If you haven't yet done so, you may wish to involve an attorney or collection agency at this point. For a small fee you may be able to arrange for a letter to be sent by a lawyer, and this can bring immediate results. Collection agencies are typically willing to work strictly on a percentage, but unfortunately their manner is often so abrasive that you may lose any chance of ever getting the client back. The amount they keep is typically 40% and above.

If you do have to write off an account balance, use that fact to resolve not to make the same mistake again. If your contract is poorly worded, get it re-written. By far the best way to ensure a positive cash flow is to come to a clear understanding, backed up by a strong written agreement, when the account is being signed up.

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