When beginning a journey in business, many people start out thinking if I can just earn this much profit I am sorted; I can live the dream! This has an element of truth to it, we are not going to make any money if there is no profit but this isn’t the oxygen of your business, your cash-flow is what will keep you alive. Keep the cash pumping round and you will stay healthy. I don’t know if you have ever heard the old saying “Turnover is vanity, Profit is sanity but Cash-flow is king.”
One of the major mistakes made by companies is that they often don’t realise, that you can not only grow too slowly, but you can also grow too quickly. If your demand grows rapidly, your profits rise and you must invest in your product. However, if your payment terms are over 90 days for example, you will have a major outlay before you see any return in real hard cash. Keeping the cash flowing is all about getting the balance right.
So what can you do about it to help things move along smoother? Well one thing you can do is look at those payment terms; here are 4 questions to ask yourself;
- Do your terms work for you or for your customer?
- Work out the average of when you are being paid, how can you reduce this time?
- Maybe you could think about flexible payment terms, would this build a trust between you and your customer which would increase their likelihood to pay on time?
- Could you take half the payment straight off and the second half later?
Just get creative, see what others are doing and don’t give up.
Whatever you decide remember it is all about keeping that cash flowing. But also never forget to consult your customers, include them in your decision, it is them who will be paying after all. By including their input in a decision like this, it will show that you trust them and want to make their experience as good as you can. This will build a stronger relationship, leading to a higher likelihood that they will pay you on time and, even more importantly, feel a sense of loyalty to you and your company.