If cash flow is the life blood of a business, then a healthy “heart” is essential. Such an organ in a profitable enterprise can be described as having separate but cooperating chambers just like its biological counterpart. In our model today– those chambers could be called “Incoming” and “Outgoing.” We also know them by more textbook terms but, hey, we’re not texting!
Let’s look at Outgoing today, since that seems to be the general direction of money these days (unless you’re Big Medicine or Utilities). Kidding, just kidding!
The following principles are no laughing matter, but they might put a smile on your face when they take effect.
First, it’s imperative to deal effectively with “no pay” or “slow pay” customers– the proverbial 20% that can cause 80% of your frustration. Since prevention is better than correction (Who said that? I did.), the first place you can make a difference is up front where deals are done. That means the prospecting/sales process must entail solid intel on your target’s ability and inclination to pay up on demand; this intel is gained in the scouting stage NOT in closing.
And sometimes, rotating your salespeople through collection duty can be an enlightening experience for them. (Why is all this “outgoing” ? Because ancient receivables COST $).
Second, treating your own vendors with respect and prompt response sets a good example for your clients. Word gets around, and crafting your own positive culture can create a climate of compliance.
Third, small businesses and startups in particular can benefit from “in kind” arrangements with other firms, especially neighboring ones who share the same geographic footprint. In-kind relationships can result in service-for-service symbiosis, with mutual mitigation of cash-flow issues. Such a relationship is limited only by creativity (and maybe tax law). The possibility of in-kind activity is yet another reason to know every player in your universe as you define it.
Speaking of creativity, a fresh look at a persistent cash-flow issue is imperative. It may be useful to introduce an incentive to your slowest big-payor or your biggest slow-payor. Such an incentive must be consistent with your in-house culture, and it needs to support your objectives.
If slow-pay clients aren’t converted into collaborators in a firm’s success, they surely will be a factor in its failure.
Next time, let’s talk some more about Incoming, the fun side of the cash-flow equation.