Managing Cash Flow

by Angie Way

Most of us were brought up from a very young age earning weekly “allowances.” This was ideal in teaching about needs versus wants and how that relates to money. Many times our parents would say, “It’s your allowance; you can spend it or save it.” The money from our allowance burned a hole in my younger sibling’s pocket. I wondered if she could save a penny if her life depended on it.

However, she did enjoy a host of candy, cool toys, and quite frankly, life. I, on the other hand, had a more frugal outlook. I was always the “what-if” one. I hated to spend money on something purely for enjoyment because I was sure I would need it for something else later.

Unfortunately, whether we are a spend-thrift or a penny-pincher, the economy has thrown some curves to most all of us. Despite how hard you have worked or how carefully you’ve watched your spending, you still have to worry about cash.

Cash flow is the measure of the money coming in versus the money going out. The obvious problem in a slow economy is that flow of the money going out can be greater than the money coming in. While the flow of the money coming in can slow down in difficult times, you still have fixed expenses, payroll to meet, utilities to pay, insurance to maintain, and a host of other expenses many of which will not change.

Initially, you can focus your attention on either side of the equation. On the out flow side, you can only reduce expenses so much until quality of your business services or your ability to generate revenue becomes an issue. You need to have your efforts directed at more than just cutting costs.

You have to be focusing on the “money coming in” side of the equation. Money coming in is more than simply providing a service or making a sale and then invoicing.Collecting your payment is the key to maintaining a positive cash flow.  You can bill all you want but if they do not pay, you have no cash flow.

Sound business principals dictate that our day to day business practices, and likely your own, address the following:

At the very beginning, find out if you will be working with a reputable client – before you commit a lot of resources to the project.

  • Do a credit check on your client.
  • Credit checks should be updated and reviewed periodically.
  • Find out how they intend to pay for your services.
  • Find out where they bank and talk to their Banker.
  • A reputable company will respect your credit check policy and should have no problems with a credit application. If they do, take that as a warning sign.

Prepare a Contract which clearly delineates:

  • The nature of your services,
  • The deliverables,
  • Each parties responsibilities,
  • The fees to be paid,
  • Appropriate payment terms which include provisions for interest charges on late payments,
  • A “stop service or supply” clause if payment isn’t received in a specific timeframe.

 Invoices should be clear and informative.

  • It’s a good idea for the total due to be in bold print.
  • The payment terms should be listed on the invoice as well.
  • The invoice should state the nature of the services and the charges.

 Follow-up on outstanding invoices.

  • If you are working with a new client, ideally a phone call on that first invoice works well to make sure no questions exist from the invoice.
  • At the 30 day mark, someone should be following up with the client on any outstanding invoice.
  • A second notice on the invoice is typically sufficient.
  • At 60 days you should stop work and be very proactive in your collection efforts even to the point that you offer to come by and pick the payment up.

Weekly Aged Receivable Reports.

  • The receivable report should be generated and monitored weekly by management.
  • Special attention should be paid to invoices over 60 days.
  • Hold your managers accountable for the status of the invoices.

Send Statements:

  • All clients should be sent monthly statements outlining the invoices still outstanding.
  • This statement should be sent to their accounting department instead of the project manager.(This allows their accounting department to confirm receipt of outstanding invoices.It’s too easy for invoices to be on someone’s desk and not make it to accounting for payment.)

Communicate with your client.

  • The best tool for recognizing project issues are missed payments.
  • Regular communication with your client about the project progress and status of the work can alleviate problems in the collection of your fees.
  • Make sure the client knows that you will be active in the payment process.They should understand from the beginning that you have a process and know what to expect.

The real bottom line on Cash Flow is that you need to have more money coming in than you have going out.When that does not happen, you have a problem.