At a recent business lunch, the featured speaker was the CEO of a small service company. He shared a story of how he took his company from a net monthly loss position to profitability in less than 12 months. He recounted how his company had historically relied on investor reserve funds to close the gap between income and expenses, including payroll, for the first 2 years after start-up, and that his employment was contingent on for the company to reach profitability within 18 years. months. He was an excellent speaker, but that point was ignored by attendees, who were captivated by his dramatic cash flow success story.
After the meeting, the CEO was swarmed by a crowd of listeners who wanted to know more, particularly the details of his cash flow success. Not having time to respond to the many requests, he handed out business cards and said he would email a summary of his company’s small business success to anyone who contacted him. Before the day was out, he responded to 27 separate email requests and responded to all with the same message.
The 9 most important cash flow actions to achieve profitability
1. Improvement of existing processes, specifically billing
2. Uniformly enforce the company’s current payment terms
3. Offer 5% discounts for payments within 10 business days after billing.
4. Offer payment plans to accounts “over 90”, instead of paying off bad debts / collections
5. Move some accounts to automatic credit card bill pay
6. Outsourcing the remaining accounts receivable to an accounts receivable management company
7. Work with the subcontractor to implement effective and customer-responsive pre-collection efforts
8. Offer a generous bonus program for employees for referring new clients.
9. Implementation of monthly review calls with the 5 most important clients to improve general communications
1. Improvement of existing processes:
The CEO had noticed a lax process in time and the explanatory content of the invoices. After improved procedures were installed, including the online billing and payment offer, the invoices were sent several days in advance and contained detailed information on prices, discounts and payment expectations. Customers had fewer questions and disputes that could delay payment.
2. Uniformly enforce the company’s existing payment terms:
With better communication of the terms and conditions on the invoices, the company was better able to group customers into payment types. Most clients want to meet their obligations on time, once they know what is expected of them.
3. Offer 5% discounts for payments within 10 business days after billing:
After two months of printing this message on the invoice, approximately 10% of the invoices were paid within 10 business days, month after month.
4. Offer payment plans to accounts of “more than 90”, instead of paying off bad debts / collections:
Although some accounts could not be recovered, most of these slow payers caught up after a payment plan was offered. And they remained good customers after they became current customers.
5. Move some accounts to automatic credit card bill pay:
It took too much time and effort just to bill and collect the roughly 25% of customers who made purchases of less than $ 500 per month. By implementing this option, you eliminated all inefficient A / Rs.
6. Outsourcing the remaining accounts receivable to an accounts receivable management company:
The CEO told recipients of the email that the company’s outsourcing arrangement with a professional accounts receivable management company was the most effective long-term accounts receivable management program. Cash flow improved continuously, month after month, but the outsourcing arrangement actually helped lower costs, freeing several existing employees from part-time collection duties and helping increase their productivity in other areas. , without adding staff.
7. Work with the subcontractor to implement effective and customer-responsive pre-collection efforts:
The CEO had to be absolutely certain that his partner’s A / R team’s “soft-raising” techniques were consistent with the sensibilities of the company’s own customers and, in fact, added good public relations, rather than annoying communications.
8. Offering a generous bonus program for employees for referring new clients:
While the company implemented controls to improve cash flow, it also improved employee morale and added new clients by establishing a compensation program for employees who find and refer new clients.
9. Implementation of monthly review calls with the 5 largest clients to improve overall communications:
The company’s previous review of accounts receivable had revealed that the largest customers were some of the slowest paying. By adding the simple concept of a monthly account review conference call, the CEO was able to gain good public relations by showing proactive concern for any of the customer’s issues or requests. Indirectly, this policy also gently urged customers to prioritize paying their outstanding balances, without specifically displaying any open invoices.
The CEO had invested his time documenting and sending his responses to each attendee who had requested more information, and he received heartfelt thanks from each of the recipients. He also received two job offers, which he respectfully declined, and a recipient placed an order for the first time with his company the next day.