How to Manage Cash Flow Effectively
Q: My cash flow always seems so tight – why is this happening?
A: Cash flow for your business can be one of the most difficult items to manage. Having a budget and knowing your expenses is the first step in helping to manage the cash drain. The biggest culprit that leads to cash flow issues is customer accounts receivable.
Q: What does my customer accounts receivable have to do with anything?
A: The decision to extend credit terms to your customers can come with a price. Your cash flow hinges on their ability to pay in a timely fashion.
Q: We charge service fees for late payments, so that’s just more cash for my business, right?
A: Yes, while that service fee is appropriate, it still doesn’t fully compensate for the extra time it takes to pay. While the customers are not paying you for services rendered, your business has already paid for your employee wages and materials. That means your business is acting like the bank for your customers – the longer they take to pay, the harder it is for your business to meet its own obligations.
Q: I don’t want to be the bank! What can I do to stop this trend?
A: Communicating payment terms, up front and in writing, can aid in the understanding and ultimate collection of fees. If there’s any doubt of payment, collect your fee up front or on delivery. I95
Weyrich, Cronin & Sorra