One of the most common problems faced by businessmen and entrepreneurs across the globe is the lack of smooth cash flow consistency. Credit periods have become norms for a number of businesses especially those involved with the manufacturing sector, other sectors like the services sector is also facing an increase number of cash defaults. The lack of smooth cash flows can dent the overall financial health of a business establishment.
If there is one thing business owners would like to settle as their dream wish, the problem of cash flow inconsistency would be the top of the list. While cash flows are often cyclic in nature going up and down as per the market dynamics and economic health, there are certain recommended tricks and tips that business owners can embrace to make sure they have a better cash flow mechanism with minimal defaults and timely payments from clients. Let us look at some of the tips that business owners must incorporate in their business activities to enable a smooth cash flow.
Consider A Biweekly Payment Structure:
If you are a consultant or someone with a monthly payment structures for your services, it is better to have a multiple payment structure allowing clients to settle in for a weekly, biweekly, fortnightly, monthly and annual plans. Focusing on only one type of payment structure increase the chances of going bust the next month is no new clients are found or the existing ones decide against continuing your products or services. Having a multiple payment structure makes sure that you are always in the scheme of things with adequate cash flows even in case some monthly of weekly payments are defaulted.
Simplify Money Collection Process:
There are a number of business establishments that take orders from individual clients offering them unique, dedicated and customized products and services. Of course all such businesses entities are better off taking some percentage of margin money upfront for order confirmation or they are leaving a very high risk of customer defaults and bad cash flows. Suppose you are involved with a business that requires a long term contract from the client, make sure to simplify the money collection process. Have clear cut guidelines of the money to be paid upfront and payments henceforth.
For example if your company takes 50% money as advance upfront to design products and services for a client, make sure to update the client on the time frame for future payments and the quantum and timeline of expected payments. When faced with a default payment have a time period for suspended animation before referring the case to a financial company or bad debt attorney.
Ink Payment Terms and Conditions in Black and White:
One of the basic principles for all financial transactions is to always ink financial agreements in black and white irrespective of the quantum of money involved. The likelihood of financial defaults is quite low compared to non paperwork financial transactions between business establishments and customers. A good way to make sure you get the maximum benefit of adequate cash flows is to offer a number of payment structures like cards, cash and online payment mechanisms like PayPal for international clients.
Bring a Financial Company or Consultant On Board:
It is a good idea to bring a financial company or a dedicated financial consultant on board who can help streamline the cash flow mechanism of the company. The role of financial consultants is not just limited in devising plans to recover bad debt or older defaults but also to devise proactive plans to minimize future defaults. Having the services of a financial consultant on the company rolls can be one of the best decisions helping the company attain substantial cash flows to keep it afloat and ride against the growing competition.
Says Jyotsna Pattabiraman, Senior VP, Product Analysis, Knowlarity
- You can show up in person to collect your payments, this often helps. Making excuses face to face is pretty hard.
- Make sure all your paperwork with the client is completely done before doing business with them. Failing to have contracts or agreements in writing can delay your payments significantly.
- Having a handy cash reserve that you can use as refunds is good. That way you won't be hesitant about taking payment up front
- Better still, hire someone to follow up on your accounts receivable if you can afford to. This adds the professional gloss and makes payment seem more urgent. Even if it is one of your relatives, who use their maiden name to make calls-in this way, your amiable relationship with the client is not jeopardized by crass calls about money, if that's your view on the subject.
Use Technology to Monitor Pending Payments:
The use of technology can never be underestimated in business workflow mechanism of any company. If you thought technology was limited in scope for large retail chains or corporations with huge financial turn over think again. There are a number of financial tools and software available in the market that companies and business establishments can use to monitor default payments. These default monitoring software send timely reminders to everyone concerned about the payment including automated calls and emails to the defaulters.
Says Divyan Gupta, Founder and CEO, Keshiha Services: “Customers pay upfront when they see actual ‘value’ in the product, service or both. As an online retailer with a curated selection of products we typically don’t face an issue as 98% of our customers pay online via either credit/debit cards or net-banking. The remaining 2% opt for the cash-on-delivery route and we have seen this to be more on low value items (sub Rs. 5,000). We recognize customers who pay online by rewarding them with extra points under our Art and Decors VIP rewards program which enables them to have a higher level of cash back on their purchases. Similarly for our cash-on-delivery customers we encourage them to pay by having a manual order validation system in place prior to order dispatch. This has been spectacularly successful for us as we have had a 100% record on all our manual validations”.