How Can I Improve My Cash Flow from Sales?

Knowledgeable SCORE advisors offer free business advice and helpful how-to’s in order to help small businesses succeed in the Williamsburg community. Have a business question you’d like answered?

Most entrepreneurs are focused on increasing sales to keep revenue growing. That’s fine, but you need to have procedures in place to ensure revenue produces cash. To meet your next payroll you need cash—not revenue.

Sales drive your quarterly budget and revenue is the result of these sales. Experts say that small businesses are susceptible to losing between two and 20 percent of their revenue–sales that for one reason or another do not produce cash. So, how do you minimize these losses?

Have a solid payment policy. When making a sale, do you communicate clearly the payment terms with the customer, so he or she knows exactly when the bill must be paid in full? Are you requiring at least partial payment before you ship an entire order or complete a project or service? If not, you may find it’s difficult to collect after the fact.

Have a solid check acceptance policy—one that your employees understand and is clearly posted for the benefit of your customers? If you receive a substantial number of checks for transactions, consider hiring a check-verification service. An electronic check reader scans the check and runs information through a database to screen out names of individuals who previously have written bad checks.

If you sell on account, have a solid credit policy. If you don’t have an account application form—get one. Ask for credit references and check them out. A good customer isn’t a good customer if they don’t pay on time. For new and/or small businesses, consider asking the owner to personally guarantee the bill.

Use software to manage receivables. This can be done either with your accounting software (Peachtree, Quickbooks, etc.) or perhaps with business management software created for you industry or type of business. The key functionality is the ability to “age” your receivables and produce an aging report. It is difficult and time-consuming to properly manage receivables if they are not computerized.

Aggressively manage collections. If you sell on terms of, say, net 30, start making friendly reminder calls on Day 31. It is not uncommon to find that credit-worthy customers are disorganized about paying bills. Call weekly until the bill is paid. Persistence produces cash.

Even if you are vigilant in managing collections, human or computer error can create apparent sales shortages. Sometimes sales are not written up correctly due to pricing or calculation errors, causing a customer to be under-charged. You must also monitor if bills are not going out to customers in a timely manner. It pays to establish and perform quality control on the process by which sales information gets captured, recorded and billed.

If you have questions about this or other business subjects, call SCORE at 757-229-6511 or e-mail to arrange for a free and confidential appointment.  The Williamsburg SCORE office is located in the Williamsburg Chamber and Tourism Alliance Building at 421 North Boundary St.

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