Cash Flow Killers

By Douglas Weinstein
Published on: March 9, 2018

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Like a shark circling your dingy, cash flow killers are always lurking. And one of the fastest cash flow killers results from unpaid invoices from your clients. Here’s the bottom line up front: if you aren’t being proactive about collecting payments, you could be on your way to a bad ending (cue soundtrack from the movie “Jaws”).

Here’s something a very smart integrator shared with me a while back, “if you don’t have clear policies in place, like late payment penalties, and your clients don’t know if they’ll hear from you the moment the payment is late, you’re probably going to be one of the last vendors to get paid.”

Overall, most SMB owners are not doing a good job of collecting money they are owed. Most of these owners say that making collection calls is one of the most uncomfortable challenges they face, second only to having to reduce staff.

So, what’s to be done? Here are just a few suggestions:

  • Begin by setting clear policies with your customers for penalties and consequences when payments are late. This should clearly define the percent tacked on for late payment and might escalate to a work stoppage after x-amount of days late.
  • Incentivize early or pre-payment. Many of your clients don’t themselves have cash flow issues, and will want to take advantage of any savings you have to offer.
  • Internally, establish a SOP regarding the timing of the initial invoice, when payment reminders go out, and when you will begin collection calls vis-à-vis unpaid invoices. And, when and how you will escalate on invoices over 30 days past due.

Despite the unpleasant task involved, cash flow management has to remain a top priority. It allows you to stay competitive and take advantage of discounts from your own vendors. But no matter how many safeguards you put in place to protect your company, cash flow problems are a business reality. And that’s why it is always prudent to maintain an account balance equivalent to at least two months of operating expenses.

 

Douglas Weinstein

Douglas Weinstein

Doug is the managing editor and co-founder of the Technology Insider Group. Previously, he was the co-founder and Executive Director of the Elf Foundation, a non-profit organization that created Room of Magic entertainment theaters in children's hospitals across North America.

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