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.” Back independent since 2019.
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.
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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, that making sure you’ve got 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 realized.
In the startup phase, we get more cash, by getting more customers. That’s a habit that we tend to hang on with, long after it serves us. Because by the time you’re into the scale-up stage of the business, by the time you’re growing and you’ve got 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 us sales and marketing and put on a whole hit more clients.
It’s actually just bringing in the cash for the work that’s already being done. I talked to a lot of businesses who have this experience, who find that they go looking for cash and their 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.
Great friend and a 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. That a job, plus an invoice, plus the invoice actually getting paid equals the job done. So it’s critical that your team appreciate that. That their job, that 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.
Consistency is the theme. Set consistent expectations in the sales process. Tell them what you’re going to do and then once you’ve done it, tell that that you’ve done it. Don’t make promises you can’t keep, don’t be vague and ambiguous to get them over the line. Be very clear about what they can expect. Have consistent work flow processes with your team. So your team know that their meeting those expectations to the client. And so the client is aware through that process that their expectations are indeed being met.
Have a consistent process around sending invoices. This might be an end of month afternoon where you get the whole team together. Here at BusinessDEPOT, we call it the Red Frog Day. We put a big bowl of red frogs to give everybody the sugar hit and to remind them that getting those invoices out might be the most painful task they’ve got today. But, they’ve got to eat that frog first in order to get on with what they’re doing. Understand your energy a little bit around that. I personally always run my invoices in the morning. By mid afternoon the last thing I wanna do is go through spreadsheets.
You may be completely the opposite. But get that process and make it consistent. Then 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 that invoice is due, and you can do this through a lot of the different accounting and invoice software like Zero, 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 gotta make for your business and 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.
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 easier. Consistency of process throughout makes your teams life easier.
It also demonstrates to the client and to the universe that you value your money. If your ad hock and lazy around you know, we do it this way, sometimes we do it that way, sometimes we don’t always send an invoice on time and we certainly don’t follow up.
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.
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 a big wack a money. When are you gonna pay it? And the person on the other end, 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, oh, 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 whether that’s because of cash flow crisis. And 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, 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 a happier work force. And when you’ve got more cash in the bank, a happier you.
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