Cash is King

Cash flow is the lifeblood of your business. Old, but true sayings.  Making sales and acquiring new customers are your growth drivers, but collecting what is owed to you, and reducing your cash outflow is your profit engine.

We at LBSI would like to offer you 10 strategies to help improve your cash position.

1)    Implement a solid and repeatable dunning process to speed collections.

The process should be automated with alerts and tracking on a daily basis, and it should be consistently applied across a class of customers, allowing you to keep notices going out (ideally electronically) on a timely basis.

  • Formal dunning letters sent out monthly (via email initially and then regular mail if amounts are very delinquent or large). Include in new invoices if possible.
  • Depending on the volume of invoices and amount, have your A/R person call the customer to make sure it has been received.
  • Try to get an understanding of the approval process for each “significant” customer. The A/P department at your customer does not  approve your invoices for payment, The person who actually ordered from you, and maybe their boss, does. Make sure the invoice(s) are not on their desk. If you know the invoice has been approved, then that gives you something to talk about when you speak to their A/P department.

If you’d like to learn more about best practices on dunning notices and collections, attend our free web seminar on May 12th at 10am Eastern Time.  Click here to register.

2)    Create order notifications and alerts for customers that have been traditionally slow or late payers.

  • Implement this for slow paying customers, who are not paying per the terms you have agreed upon. Alert A/R and even the order entry person, that this customer is a “slow pay”.
  • Once your team is aware, they can then bring the situation up with the person placing the customer order so they can have an internal discussion with their A/P department.

3)    Move to electronic invoicing

  • It will take less time to create a PDF file than to print, fold, insert into an envelope and apply postage.
  • 2-3 days of mailing time is also saved.
  • If you don’t have that many invoices and you know the approval chain of command at a customer, consider sending the invoices to the A/P contact and cc: the person who placed the order. This may reduce the internal processing time at the customer as well.

4)    Take credit cards for payment processing

  • If you don’t take credit cards for payment, you should evaluate vendors and integration processes.  Even if you process credit cards manually, without integrating to you business system, there is a cost and time savings.
  • While credit cards carry a 1.5%-3.0% cost, it is quickly offset in reduced staff time against collections and overall improved cash position.
  • Your customers may like this because they can get credit card rewards for payments to you.

5)    Use ACH transactions for payment collections

Another alternative to credit cards to speed your cash collection is to get your firm set up for automatic cash collection from your customer’s bank accounts via ACH transactions through the banking system.

  • This saves the mailing lag time, as well as both your customer’s A/P department and your A/R department time.

6)    Leverage Vendors Payment Terms

Consolidate your orders to vendors and consolidate vendors that your organization is using to increase your purchasing leverage.  Consistently pay vendors on time so that you can request increasing better payment terms.

  • Take advantage of trade discounts where possible.

7)    Reduce shipping charges

With continuing competition from all major shipping vendors, look to consolidate your shipping services, bundle shipments, rate shop to keep vendor rates competitive, negotiate volume rates and utilize the web based and other services shippers offer to reduce rates.

  • If you don’t have the desire to purchase and install rate shopping software, consider some web-based solutions

8)    Vendor Managed Inventory

If you use or sell a large quantity of inventory from a few vendors, then moving to a vendor managed inventory system will improve your cash position.  By allowing your key vendors to stock and manage inventory at your site(s), you relieve yourself of the need to pay for inventory until you use it and alleviate issues related to stock not being available or requiring rush shipments (and the associated charges)

  • If you tried VMI in the past and you had trouble with your staff documenting what was used vs. what the vendor said, there are some new tools out that. One is vending machine type disbursement that depending on the size of the product, may be a good solution. The costs have come down and even some vendors will pay for the machine to be installed at your location.

9)    Use material planning software

Reduce inventory on hand implement processes to receive just before it is needed by using some of the sophisticated demand planning solutions that are available today.  These systems go beyond traditional MRP and safety stock solutions to allow you to better plan and control your inventory cash outlays

  • Re-review forecasts periodically, and get sales management to participate.
  • Revisit vendor lead times, shipping methods, shipping costs, vendor proximity, etc.
  • Spend the time to find excess and obsolete inventory. Find ways to sell it, that won’t harm your sales of existing product. Savings could be in warehouse space, inventory taxes and simply getting cash.

10)    Use Credit Cards for your Benefit

Use a credit card for purchases that will give you points that are useful for offsetting common expenses such as office supplies or occasional travel costs.
If you’d like to talk through any of these strategies in more detail, please give us a call at 877-605-LBSI (5274).  As an addition reminder, we will be holding a web seminar on May 12th specifically on best practices for dunning and cash collection.