Managing Money

Cash is King ... No Cash means No Business ...

You would be very lucky if all your customers were cash paying customers. Your business cashflow would be a dream and some businesses really are in that happy situation.

Most businesses however, have to extend credit to some extent and managing this takes time and skill. A business function that is neglected at your peril. Let?s take a look at the managing money skill aspect first.

Accounting Skills ... much needed and highly sought after.

• In most cases, business owners are not experts in accounting.
  • Your expertise is usually in the service or products you offer or produce.
  • Realize this and leave your accounting to an expert.
  • Sloppy bookkeeping will cause business failure.
• Managing money is a crucial function in any business, a senior executive position in fact.
  • I am serious here; your small business finances need the best you can afford.
  • A good financial manager or director will safeguard the assets of the company, contain costs and recommend cost cutting measures.
  • Cost control, containment and fat trimming are major aspects of the job, but getting the cash in is essential.
• Unless you have a partner or employee with specialized accounting skills and experience give serious consideration to outsourcing your accounting. You will never have the time to do it properly yourself and it really needs to be done properly.
• If your business is small, outsource to an experienced accountant on a part time basis.
• Never mistake a bookkeeper for an accountant...
  • They are very different and managing money well needs an accountant. In many cases you can recruit the services of a retired chief financial officer (CFO) or a certified public accountant (CPA) and get solid advice as well as a good set of monthly accounts.
  • These will include your oh so vital balance sheet.
  • If your business is large enough employ a full-time CFO or outsource to an accounting service.

You can save yourself a lot of time and money as well as gain the experience of a profit center expert by outsourcing your accounting function.

Business Cashflow Problems ...

Sales are good, profits are better, but cash is short, this is often the dilemma of both small and large businesses.

If you are in business you will get to experience this crazy situation. The culprit is usually overdue receivables.

How do you prevent this dilemma? Get paid and get paid on time.

As always prevention is better than cure, so reducing your exposure to a bad credit risk is essential. Here are a few suggestions to help with managing money :-

• Establish Your Payment Policies ... Before you make your first credit sale have your payment policies laid down.
  • Your money management depends on it.
  • Only give credit if you have to and only to customers who meet your required criteria.
• Know your customer ... Get to know your customer by visiting your customers business.
  • Would you be prepared to loan money on the basis of what you see?
  • Find out from their other suppliers how good a payer the company is.
  • Get references from the customer and others, even if they are word of mouth ones.
  • Ask your sales staff if they would extend credit to the customer? They often know more about the customer than you.
• Set firm credit limits regarding amounts and credit time periods for each credit customer and monitor them carefully.
• Get Completed Credit Applications ... Make sure that your customer completes your credit application form and clearly understands your credit terms.
  • Get names, addresses and phone numbers.
  • Some proof of identity, license number or other registration.
  • Customers bank details and bank branch.
  • If appropriate, get some form of security, such as a lien on property.
• Invoice all goods on delivery or very soon after, don?t wait till month end.
• Understand your customers accounting system.
  • When, how and who do they decide to pay first?
  • What is their money management like?
  • Try and arrange your invoicing so that yours are always at the top of their pile
• Contact a credit reporting agency for financial information on the customer.

Finally if you feel uneasy about extending credit on a large scale, don?t take the chance even if it means losing that customers business.

Now comes the crunch. You have extended credit, due payment date has come and gone. How do you get the client or customer to pay?

Collecting the Money ...

Here are some suggestions that usually work, bearing in mind that it can often be less costly to write-off a small sum owed than to spend time and money trying to recover small amounts.

• Once the due date for payment has passed, call your customer. Ask if your invoice has been received and tell them that payment is late. Suggest that you can help by collecting the money.
• If you have to phone again, remind them of your payment terms and their lack of payment.
• If a payment due date has come and gone, flag any further business as 'Payment on Delivery' basis (COD). Often when a customer tries to place an order and is told that it will be COD, this jolts them into settling any outstanding amount.

But, you can mess around with phone calls for weeks and months if you are not careful.

Don't get that money in and your business will suffer while your customer enjoys your interest free loan.

Follow your payment procedures and push. Managing money means working until you get it.

• Two weeks after a paymnet due date and no payment, visit the customer. Talk the problem through. If you can walk out with even half the payment due, you have won that round.
• If your telephone calls or visit brings no settlement, start sending letters demanding payment. Start mild and grow urgent, but always remain businesslike. Only threaten legal action if you are prepared to carry it out.
• If you are prepared to pay the price, you can engage a factoring company to buy your outstanding accounts receivable and let them handle the collections. This can be expensive however, with fees ranging from 3% to 5% of the invoice balance.
• Legal action. The last resort is expensive and will cost you between one third and half of the outstanding account receivable. It can also cost you the customer so consider all other avenues first.

Once you have finally received payment from your customer, don?t resell to them on a credit basis again, its cash or nothing for then on.

Slow payment is usually a sure sign of financial problems, bad inventory control or money mis-management, so be warned.

Managing money and potential customer danger signs ...

Good money management also means keeping your eyes and ears open, and even more so in times of economic recession.

When your customer says or does any of the following, review, revise and check ...

• The check is in the post
• We only have one signatory available to sign, Mr. Jones, our accountant will be back next week
• We have some queries on your invoice that need to be sorted out
• We are waiting to be paid by our customer, before we can pay you
• We are still waiting for the goods

Payments that get slower and slower can be the precursor to the inevitable crash.

If a large customer goes under you can soon follow. So keep your ear to the ground and try to stop extending credit before it's too late.

Business cash flow and managing money takes energy and skill, sometimes more so than all the other aspects of managing a business, but you must get it right to succeed.

Giving your customers credit is a risk, so decide based on carefully laid out procedures, which customers you will risk giving credit to.

Your service or product is not a sale until it is paid for, until then it is a loan.

Be cautious and be careful who you allow to purchase on credit. The right accountant and proper financial control can mean success, but only if managing money benefits your business as well as your customers