Posts Tagged "payment terms"

Seven Strategies to Keep Cash Flowing

Cash flow is the lifeblood of every business. All too often though, business owners fail to pay enough attention to bringing cash into the company as quickly as possible. Next thing they know, there is not enough money on hand to pay staff, suppliers and vendors. There are several key things business owners can do to try and make sure this never happens to them. The idea is to be consistent with your approach to cash management, and keep the business in the best financial condition possible at all times. Strategy # 1 – Only Deal with Quality Customers It’s essential to deal only with quality customers who appreciate the value of your product or service, and are willing and able to pay promptly in return. A business with a cash flow crunch almost always fits into the 80/20 rule where only 20% of sales are coming from the 80% of customers who are the most difficult to deal with. Strategy # 2 – Get Paid Up-Front Whenever Possible Ask for payment up-front, or even C.O.D. Too many businesses offer terms automatically, when the fact is that many of their customers are more than willing to pay up-front. Strategy # 3 – When you Offer Terms, Be Selective Don’t offer payment terms to just anybody. Reserve terms for selected clients who genuinely need and deserve them, and are willing (and likely) to pay on time. Instead of terms, offer incentives to pay up-front. Given the fact that most companies that offer terms carry an A/R balance that is a significant percentage of their annual gross, a 5% (sometimes even 10%) discount for payment in advance can be a very wise exchange. Strategy # 4 – Tighten Up Your Terms Although many businesses offer 30-day terms as a matter of course, this delays the time it takes for the business to receive the money it is owed. Instead, when it’s necessary to offer terms – reduce them to 7 or 14 days max and follow up with overdue accounts promptly. Give customers a reasonable amount of time to pay, and don’t compromise your company’s financial health by volunteering to be your customer’s overdraft line. Strategy # 5 – Negotiate Scheduled Payments Another way to bring cash into the business faster is to break up payments for larger jobs into a down-payment and progress payments at specified intervals during the project. You

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