Many clients tell me they have a profitable business but they are struggling to find the cash they need to grow, or sometimes, even pay their bills.
There are several things affecting your availability of cash:
- Spending cash you don’t have
- Confusing business and personal funds
- Your terms of trade (basic)
- Your debtor collection procedure
Now one and two can be easily solved with a little bit of self control and planning. Three and four, however, always seem to be more complicated for the business owner to grasp.
Terms of Trade
This is what I like to call the "New Zealand 20th of the month following” syndrome. Who gives out the little cards for business instruction that says your terms of payment must be on the 20th of the month following? Why an earth would you want to wait that long? There is nothing wrong with setting your payment terms at 14 days, 10 days or even seven days. If your customer has received goods or services then you need to be paid in a timely manner. This brings us to number four.
If you have the NZ syndrome of terms then think on this, if you issue an invoice on the 1 June, you would not get paid until 20 July – 51, yes, 51 days waiting for funds. Therefore your debt is already 51 days old before you start to collect it! If your terms are 10 days, you can start collecting on the eleventh day.
But do you have a set procedure? If you don’t, nor do you have the manpower to concentrate on getting your money in, nor do you want to work for free, then outsource your ledger to someone who will get the funds in. It’s cheaper than paying the bank interest and fees on a fully-drawn overdraft facility.
If you do it yourself, make sure you have a procedure, make sure you have set reminders so that you do not forget and make sure you hand it on to a debt collector in a timely fashion. You can download a simple guide from the website www.onlinementor.co.nz/business.html.
Secret number five
What colour are your invoices? Do they get noticed? Do they have your logo on them. Do they demand attention?
There is no rule that states all invoices need to be printed on white paper. Choose coloured paper to get them noticed, and, if you have a coloured logo ensure the colours stand out.
It also gets around the excuse, "It’s somewhere here on my desk”. You can respond that it should be easy to find as it is bright yellow/blue/purple etc.