Cash is the grease upon which a business runs. Many a business has crashed and burned because they couldn’t free up cash that was tied up in receivables. To prevent this from happening, there are a few rules of thumb:
- Avoid sales on credit, unless you industry demands it. It’s less risky if you are selling a product with a high profit margin. But if your selling expensive products with low margin and without a secured interest, look for other ways for your customers to finance the purchase.
- If possible, let your customers use credit cards. There is an associated cost which has to be factored in to the sales price. But generally, this cost outweighs write-offs and the costs of collection.
- If you have existing receivables, be assertive in getting them collected in a timely fashion. There are many ways to do this, including reminding the customer that the negotiated price was based upon timely payment. Sometimes just pointing out that the arrangement was based on the word of an important person in their company will be enough to get to the front of the payment line.
- Be creative in collecting receivables. I once negotiated exchanging a large receivable for a short-term note secured by real estate, which we were able to sell to generate needed cash.
Chances hard you worked hard to create your receivables. If you have a specific receivable collection problem, call me at 805-377-0405.