Imali iyinkosi. Or Zulu for ‘cash is king’

I am spending the bulk of my time in South Africa and whether you are speaking Zulu or English the saying “revenue is vanity, flow is sanity, but cash is king” resonates across the board.

We’ve all seen businesses go bust having previously reported large profits only to find that they have no cash in the bank.

Cash is the lifeblood of all businesses – whatever the language.

Cash moves through a business in only two ways:

It is received mostly as payment for goods and or services rendered (cash inflow) and;

It is spent for goods and or services received (cash outflow)

To manage your cash effectively, it follows that you need to effectively manage your cash flow – the relationship between cash inflow and cash outflow.

Managing cash inflow

Managing cash inflow is vital for survival and long-term success. Unless you are solely a cash-based business (which most are not), you will be offering some form of credit terms to those that you sell to.

Managing cash inflow depends on how well you manage your debtors – those who owe you money.

Here are a few ideas that will help when trying to collect monies owned to you:

• Invoice on time – Make sure that you send your invoices to customers promptly – many small businesses are poor at invoicing

ALWAYS invoice with job (unless you have a special arrangement with a customer).

• Be careful about giving credit – a sale is not a sale until the money is in the bank!

I always advocate making new customers pay upfront for their first few orders and I will credit check customers, particularly for bigger orders.

• Have a credit control procedure – It is vital that you manage the collecting of monies owed to you effectively. Agree terms upfront with customers, chase payment on a regular basis and use reminder letters. Process, process, process

If a debt becomes overdue, the following will help:

• Line up your ducks – make sure you know every­thing you can about the customer. Have at hand details of all invoices, con­tracts, and any other infor­ma­tion that will help you speak knowl­edge­ably, pro­fes­sion­ally and per­son­ally with the customer

Keep Notes – take care­ful notes about every­thing that was dis­cussed, includ­ing the customer’s comments. Most accounting packages have a field on the customer account for memo information – use it!

Note the information down promptly in case you forget!

• Be open minded – There may be be a genuine reason why the debt hasn’t been cleared so be careful not to alien­ate the cus­tomer

Remem­ber, there may be poten­tial future busi­ness with this cus­tomer. Be care­ful with your tone and your words. Wait and lis­ten to what the cus­tomer has to say and be sure to doc­u­ment everything said as noted above.

• Be professional and respectful – start the con­ver­sa­tion in a friendly, non-confrontational manner and hopefully the cus­tomer will respond more positively

Once you have con­firmed that you are speak­ing to the cor­rect person, ask if you can do any­thing to help. Also, ask if they need any addi­tional informa­tion. Showing you care or under­stand the debtor’s side of the story may pre­vent that per­son from becoming defen­sive.

• Offer options – If a cus­tomer is hav­ing trou­ble pay­ing, try to work out a plan that will work for both the cus­tomer and for you. The goal is to get the cus­tomer to pay the entire debt as quickly as pos­si­ble and to retain their future custom
• Keep talking – Even if the debtor can’t pay right away, it is always impor­tant to keep communicating. They may be able to pay in the future, and by talk­ing and lis­ten­ing, you may be able to help them find a way to clear their debt

Managing cash outflow

Managing cash outflow is similarly critical to the success of any business.

Here’s some ideas that might help:

• Expenses – review your expenses regularly. Do you really need it? Are you getting the best deal? The internet has made comparing costs easier than is has ever been – use it!
• Price is not everything – don’t focus on the lowest price. Relationships with suppliers are important and sometimes more flexible payment terms can improve your cash flow more than just cheap prices
• Business is all about relationships. Build trust and understanding with your suppliers so that if/when you need a little hep they will be willing

If you promise a payment datestick to it – broken promises have a long memory! Regularly review your payment terms and credit limit with suppliers

• Pointless spending – STOP IT!

Conclusion

Remember, cash is king and successful business owners are successful cash flow managers.

Finally, a bonus:

CREDIT COLLECTION CHECKLIST

1- Invoice faster, daily and with job – rule number 1.

2- Ensure the invoice is accurate.

3- Invoice as agreed – ANY deviances open the door for abuse.

4- Use client purchase orders when possible.

5- Confirm client has received the job.

6- Use delivery notes as proof of receipt.

7- Set a Credit Limit for each client.

8- Take out credit references against new clients.

9- Insist on pro-forma payments for new clients

10- Bank daily.

11- Get clients to pay you by BACS.

12- Use an Aged Debt report to monitor and chase outstanding debt.

13- Be prepared to put customers on ‘STOP’ for late payment.

 14- Buying from your customers might encourage them to buy from you.

 15- Sort problems quickly – any delay means less cash in bank.

16- Offer flexible payment plans for problem accounts – under your control.

NOTE: Some advocate offering selective discounts for faster payments.

Personally, I think discounts are the start of a slippery path!