Having a poor or hopefully not, a non-existent cash flow could be due to any number of reasons or maybe a number of reasons. In order to fix your cash flow problem, you need to know why it is happening.
Suspects to Clients
Not having enough suspects, to turn into prospects which can become real paying clients is a big issue. Note the progression and realise you need to start broad with the more suspects you have, the more clients you will have coming out the end of that funnel.
You have clients but not enough sales. Are you revisiting them on a regular basis, finding out what they are doing, telling them about any new initiatives or product you have, it may be just the thing they are looking for. It is called servicing the customer or customer service. Everyone appreciates being recognised and wooed, it can definitely prolong the relationship.
This can be a major issue, if you have too much stock, it is taking up valuable space. Are you buying too much product which then results in that stock sitting idle? Or maybe the issue is not enough inventory because you don’t have the resources to manufacture more and therefore you are missing out on sales. It can be a fine line. Knowing your customer’s buying habits will help in managing inventory and recognising the peaks and troughs of supply and demand. Understanding market trends also helps to know when to produce more to cater for the slow market period.
Is your pricing suitable for your target market? Does it need to be adjusted to suit current market conditions? Keeping an eye on the relevant industry bodies for your business will keep you up to date with trends and again knowing your clients and their situations and issues will also assist.
Can your credit terms be credited with the poor cash flow? Are you too generous? Are they not clear enough on your invoices? Credit periods must be clearly shown and in some respects stating a specific date is a much better option, as there isn’t any ambiguity with that and no argument. Where it is a new client and you haven’t any idea of their credit worthiness, it is best to state “payment is on receipt of invoice” and follow up the client to ensure they have received the invoice – again no misunderstanding. When determining the credit you offer, you must know precisely what your outgoings are and make sure the credit period supports your peak spending period.
Your inventory is fine, you have the clients, you are making the sales but the money is still elusive.
Are your collections actually happening? Do you know what is outstanding and for how long? Is there adequate follow up for outstanding debt? The chances are this is a key factor for poor cash flow, as most of us do not like having to ask for money and worry what sort of impression that creates. Well it is your money, you and your business have earned it, you have every right to ask for it.
If you are one of many who dislikes the debt collection part of the business, outsource it. Factoring is outsourcing your accounts receivable. A Factor is not a debt collection agency, if the debt is so bad you need that service, you definitely need a Factor to ensure you don’t reach that stage.
A Factor can provide information on the creditworthiness of your customers; maintain the history of payments by customers (i.e., accounts receivable ledger); and daily management reports on collections.
If you are concerned about a client’s reaction to a Factor handling this part of your business, you needn’t be. Any good Factor knows they will lose you as a client if they upset your clients in way. Outsourcing is also very common for a range of business processes and just makes good commercial sense.