Managing Cash Flow When Customer’s Cash is Tight

Pain of Today

1.  Business activity is beginning to improve
   1.  We see it in restaurants, traffic, news and stock market
   2. Most of us see it in increased or slightly increased orders
   3. We optimistically believe with this order volume increase, revenues, followed by collections, should improve.
2.  Increased business activity comes with increased needs for us to spend money up front to support the activity.
   1.  More inventory or
   2. More people to service the needs (or both)
   3. Accompanying costs of customer service
3.  In order to match the upfront increases with cash coming in, we are assuming that our collections will match increased sales.
4. In many cases our customers have been weakened by the recession and are having a harder time paying their bills.
   1.  Old way of invoicing and receiving checks in 30-60 days isn’t as normal today.  People paying who they must before who they would like to pay.
   2. Danger is real – DSO’s going from healthy to unhealthy – 30 days becoming 60/75; 45 days going to 90/120.
5.  Net result – cash crunch

New circumstances call for new solutions

1.  Requalify your knowledge of your customers – ask for information.
   1. Financial statements – OR
   2. D&B reports  – OR
   3. Hoover’s – OR
   4. Ask other vendors – are they ok and paying their bills?
2.  Renegotiate your agreements with them
   1.  Possibly larger discounts for quick pay
   2. Use credit cards (business) and have cards on file with agreements to charge if invoice unpaid after X days
   3. ACH payment agreements – automatic drafts
   4. Deposits on order, with staged balance payments.
3.  Monitor compliance with agreements tightly and individually
4. Call when overdue – but days vs. months
5. Work out alternative pay plans quickly or get personal security
6. Fire customers who can’t or won’t pay
7. Develop relationships with collection attorneys
   1.  Special rates and collection percentage
   2. Letters vs. suits

Improve your service and stay competitive on prices

1.  Delight your customers by going the extra mile.
2. Anticipate their needs and be there to help.
3. “Pay it forward” where you can – Add surprising extra value.
4. Let them know they are appreciated
5. Stay in touch with pricing in your market
6. Don’t become low cost leader unless it is strategic
7. Combine extra service with slightly higher costs to product margins.

by Steve Gross.