5 Steps to Improved Cash Flow, Better Debtor Management. In Blackboard Fridays Episode 94, Jacob talks about Business Financials. Need this implemented into your business? Talk to the international business advisor who can do exactly that – Contact Jacob, Learn More, or Subscribe for Updates.
If there’s too much month at the end of your money; if you’re checking your business bank account daily (or even more often); if your team are working hard but the energy is waning; then you just might be in a Cash Flow Crunch.
While it can seem the only solution to being crunched is ‘more clients’, in reality most businesses are a little guilty of lazy debtor management. And while new clients means more leads, more sales, and more work to be done – reining in your debtors means bringing in cash that’s already yours and requires no extra effort.
Better still, as we explore in this week’s episode, you can create more consistent processes from your sales cycle onwards to keep the flow of cash smooth, and your debtors under control. That context of ‘Consistency’ is crtical – watch as we discuss 5 Consistent steps you can be taking right now.
Who is Jacob Aldridge, Business Coach?
“The smart and quirky advisor who gets sh!t done in business.”
Since April 2006, I’ve been an international business advisor providing bespoke solutions for privately-owned businesses with 12-96 employees.
At this stage you have proven your business model, but you’re struggling to turn aspirations into day-to-day reality. You are still responsible for all 28 areas of your business, but you don’t have the time or budget to hire 28 different experts.
You need 1 person you can trust who can show you how everything in your business is connected, and which areas to prioritise first.
That’s me.
Learn more here. Or Let’s chat.
Blackboard Fridays Episode #94 – 5 Steps to Improved Cash Flow, Better Debtor Management
We’re all familiar with the old adage in business that ‘Cash is King’, and if you’ve ever had a Cash Flow Crunch and gone through the pain of what that means for you (your family, and your business) then you will definitely agree. Making sure you have cash and access to cash at every point in the economic cycle is a critical way to make sure that your business remains sustainable, and your opportunities are realised.
In the Start Up phase, we get more cash, by getting more customers. That’s a habit that we tend to hang on to, long after it serves us. Because by the time you’re into the Scale Up stage of the business, you’re growing and you have a consistent, steady set of clients and a team; almost certainly, a large amount of cash is sitting on your debtors list, and the way to get more cash into your business is not to have to go out there and ramp up sales and marketing and put on a whole lot more clients. It’s just bringing in the cash for the work that’s already being done.
I talk to a lot of businesses who have this experience, who find that they go looking for cash and they’re not quite sure how to get through a short term-crunch. While there are specific conversations that you need to have, what you’re really looking to build in your business is a clear debtor management system. If you can get consistency through all of these different elements then you will consistently have the cash that you need available.
“Job Done” Defined
A great friend, business mentor and former client of mine, Greg Vann, once taught me that “A job done does not equal ‘a Job Done'”. It was something he learned through many years of professional services with his team. A job, plus an invoice, plus the invoice actually getting paid equals the job done.
It is critical that your team appreciate that, that their job and that task is not complete until the invoice has been paid. Right the way back, even before the job comes in, when it comes to sales, we can start to build that consistent process that will improve our cash and our debtor situation down the track.
1. Set Consistent Expectations in the Sales Process
We’ve discussed before how Sales is about setting expectations, so the team can deliver. And Debtor Management starts with those expectations: Tell them what you’re going to do … and then once you’ve done it, tell them that you’ve done it.
Don’t make promises you can’t keep, and don’t be vague and ambiguous to get a prospect over the line. Be very clear about what they can expect.
2. Have Consistent Workflow Processes
Have consistent workflow processes with your team, so your team know that they’re meeting those expectations to the client. And include in those processes enough communication so that the client is aware throughout the process that their expectations are indeed being met.
3. Have a Consistent Process Around Sending Invoices
This might be a weekly rhythm. It might be an end of month afternoon where you get the whole team together. When I was a partner at Depot Accounting we called it the Red Frog Day, and we put a big bowl of red frogs in the kitchen. (This gave everyone a sugar hit, it reminded them that invoices was the most painful task they might do that day so “eat the frog” first, and of course they were red because that’s the colour of accounting and administration!).
Understand your energy around invoicing as well. When I made this video, I always ran my invoices in the morning because by mid afternoon the last thing I wanted to do was go through spreadsheets. Since becoming a dad and taking on more international clients, my work rhythm has changed and I now do invoices when the household has gone to bed and I can concentrate better.
You may be completely the opposite. But get that process that works for you and make it consistent.
4. Maintain Consistency in Invoice Follow Ups
Once the invoices have gone out, have a consistent process for how you keep chasing them until they get paid. The job isn’t done just because the invoice is gone. The job is only done when the invoice gets paid. Hopefully, it gets paid immediately. If not, set up an automatic reminder.
The day that invoice is due, and you can do this through a lot of the different accounting and invoice software like Xero, you can actually have it automatically check the bank account and go out and send that reminder. What’s your process for the follow up call? Do you do that the day after? Do you wait another two weeks?
That’s a specific choice that you’ve got to make for your business by understanding the cash flow cycle in your business. Have a consistent process and don’t skip it. If on the first day of each month you pick up the phone and call every overdue invoice then stick to that.
5. If All Else Fails
Lastly, have a worst case scenario. Have a relationship with a debt collector or a collection agency. Know what the ultimate escalation is that you are going to do with that invoice. Consistency of process throughout makes your life (and your teams lives) easier.
It also demonstrates to the client and to the universe that you value your money. If you’re ad hoc and lazy around your invoicing process you’re basically sending the message to the universe (or if you prefer, to your client) that you don’t really need the money. You don’t really care about it that much. There’s certainly no urgency or hurry. And frankly, if you don’t value your money nobody else is going to either.
The Power of Picking Up the Phone
Let me end this with one of my favorite stories. This was a client of mine that took over some financial services for one of their clients. They did exactly this, they jumped in, went ‘you need more cash, let’s have a look at the debtors list, and let’s get on the phone and follow those people up’.
They called the biggest overdue invoice, the largest debtor on that ledger and said, “You owe this business this amount of money. When are you going to pay it?” And the accounts lady on the other end said, “Oh, we’ll pay that immediately”.
And so my client, who is going in there and performing this service had the ability to ask the question. “What stopped you?” And the accounts lady said, “We have a policy in our business where we only pay invoices when we get the call”.
Now whether that’s ethical or whether that’s moral or whether that’s because of a cash flow crisis in their business, I couldn’t tell you. But that was their policy. They wouldn’t pay an invoice when they received it, they wouldn’t pay it when they got a reminder e-mail, they would only pay the invoice when they called.
My clients client had a policy of never calling. They didn’t want to be confrontational, they didn’t want to be rude because they loved their clients. You created this impasse, all of the cash this company could pay, and that this company needed, just because nobody wanted to make a phone call.
Value your money. Build a consistent process. Not only will you get jobs done faster, you’ll have a much happier client base and a happier work force. And when you’ve got more cash in the bank, a happier you.
Next Steps
Want to learn more about how this can apply to your business? It costs nothing to chat:
- Email me jacob@jacobaldridge.com (I read them all)
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