One of the segments in our recent Manufacturers’ Alliance meeting on cash flow issues was a take-off on the age old phenomenon of creating lists. The question asked was,
“What are some simple straightforward action steps that a business owner could take to make a quick improvement to daily cash flow?”
While many suggestions and alternatives where discussed, the consensus on the most usable ones would be highlighted by the following list:
10. Always ask for more money upfront. While simplistic in thought, difficult to do in application. The caveat to this suggestion is getting outside help in learning how to do this.
9. Eliminate holds, reserves or any other type of financial vehicle you are using to keep you from mis-spending money. Change your bad habits and don’t hold up your money.
8. Shift receivables to a finance company. If you can take advantage of discounts or large volume purchases, the quick access to cash will more than offset the cost of using an outside broker.
7. Conduct routine credit checks on everyone, including yourself. In our digital world, credit scores change quickly. This is an easy way of getting advanced notice of a potential problem, particularly if it is one you unknowingly created for yourself.
6. Regular reductions in the cost of your inventory. Most of the focus is on the physical reduction of inventory. One of the low hanging fruit items is measure the cost of moving your inventory. Reduce the number of touches and it will automatically lower your unit cost.
5. Use creative incentives to entice early payments. The traditional 2% – 10, net 30 days seldom inspires organizations to move their cash to you faster. Give them something in return for early payment. If you give potential customers free coffee mugs, why not give a mug for early payments.
4. Bill before you ship. While this may not seem possible, many industries get payments for partial completion of a job. Break your process into segments and get paid for hitting each milestone in the product build.
3. Every conversation with a customer by anyone in your organization should be treated as an opportunity for up-selling or cross-selling. There is no limit to the ways that you can create better or another revenue opportunity but you need to develop the plan and provide the tools to help the members of your organization become successful.
2. If you haven’t done so recently, raise your prices and blame it on your outside accountant. Even if you have to retract at a later date, you have planted the seed for a future increase. Raw material increases, transportation costs and labor shortages (causing overtime) usually provide a reliable excuse as well.
1. The number one suggestion is accept and encourage credit card payments. This creates quick cash for you and keeps your money from the customer digital. On the flip side, always keep your payments on a check/paper basis. This keeps your money on the positive side of cash flow as long as the check is in the mail.
Even if only one of these suggestions is helpful, it meets our goal of continuously sharing of knowledge and information among our manufacturing members. See you at our September 28th event.