Cash flow is king, especially in slow times. One way to speed up your cash flow, of course, is to shorten your terms, say from 60 days to 45. That frees up over $1million for a business with $25 million in annual revenues. But when the economy is flagging you may not want to ask your customers to take shorter terms. Here are two ways to improve cash flow without pushing your customers to pay more quickly.
First, tighten up your billing process. It’s not uncommon for a company to take as long as two weeks to get invoices out the door. If you’re a $25 million dollar company, every working day you take preparing invoices ties up almost $96,000!. Cut three or four days from your processing cycle, and you’re talking real money.
Second, offer discounts to customers who accept shorter terms. If you’re now offering 45 days, you might suggest a 3% discount to anyone who accepts 30. On a $10,000 order, that will cost you $300. But if getting the $9700 fifteen days early helps you make a payroll or pay a vendor without drawing on your line of credit, you’re well ahead of the game. And remember that everyone else is looking for savings now. A discount policy for people who pay promptly may get you some new customers.
