Judy’s Comments

4 minutes reading time (730 words)

Improving Cash Flow

Tricks to surviving until the economy returns to normal

For those business owners wondering if the economy will ever return to normal, the answer can be visualized by thinking about the person who throws a penny down and well waiting for it to hit bottom. The real question centers on why read the papers or listen to the news about the economy; those facts are often irrelevant to your specific business.

When thinking about what more you can do - consider this.Cash is not only King but also Queen and Jack. Let's assume you have made every effort to collect accounts receivable by sending monthly statements, called on past due customers, placed some for collection with agencies and are still frustrated by a lack of cash. Don't despair. If you cannot raise the bridge, lower the water. Slow down payments to vendors. As a mind reader (my other occupation), I am getting the vibe you have already done this, but have you considered the following.

Divide you vendor list into three categories :

A) Very important to my business and I need to pay this group on a current basis,
B) Maybe important, circumstances dictate this group's importance.
C) Not at all important, don't plan on using their services/products in the future.

Most times, companies disburse all cash received in an appropriate manner, paying groups in order of importance from A to C, and often there is not enough money left to pay the last group, C. So what do most companies do? They make deals to pay category C a fixed amount of money each week or month just to stop the collection calls, shut the vendor up and prevent litigation in the form of a collection agency or lawyer. Often payments are structured just to stop the nuisance calls with little thought to whether those payments can be made.

Not that I would mind competition in my other occupation (mind reading) but how do you know how much cash you are to collect from your customers each week? Will it be enough to make those settlements? Can you really predict who will pay you? In my over 30 years in business I have never seen anyone who can do this accurately for a long period of time, maybe a week or three but that is it.

So what happens next? Cash collections are insufficient to pay all categories and those structured payments are not made and the collections calls start again but this time they are more difficult to resurrect because of the past experience. And your business life becomes more complicated. Instead of focusing on making profits, you work countless hours dealing with vendors with whom you will most likely not transact any more business.

Here is one solution. First, do not make any structured payments with any vendors in category C. Here is what you can tell them:  

1. I don't have enough money to pay the bill.
2. I will commit to pay the invoice(s).
3. Each week/month I will review my cash position and send you a payment. I don't know how much, it will depend on how much I collect.
4. Please do not be insulted if the payment is a small one. At times there is just a little left over but you will get a proportionate share.
5. You may call me if you want but it won't change what I need to do to keep my business alive.
6. Please be patient and let me try to get you paid in a timely manner, but it has to be based upon what my cash flow allows.
7. If you wish to place me for collection, that is your option. I would hope you would not do that, as we will both suffer legal expenses. I will have to use the money I would be paying you to a lawyer and payments to you will suffer.

This program generally works because it makes sense and is realistic. Vendors would rather be paid then sue and only have a weak chance at collecting.

Stand your ground on the first call. It may take more time but if you succeed, the calls will lessen and cash flow should increase.

Good luck. Let me know if I can help. Neil Goldstein. This email address is being protected from spambots. You need JavaScript enabled to view it.

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Tuesday, 21 May 2024

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