Q: My business is doing well but customers don’t always pay on time which puts me in a cash bind. Can you suggest ways to eliminate this problem?
A: You cannot spend accounts receivables; that is cash that is owed to you by your customers. To begin you should age your receivables as current 0 to 30 days, 31 to 60 days, and over 60 days. Offer discounts to customers who pay promptly. Telephone those over 30 days and let those over 60 days know that unless payment is promptly made you will turn the account over to a collection agency.
For new customers require a deposit or payment up-front. My dentist always asks me how I want to pay before I leave their office. You have a right to be paid for products and services rendered. Let your customers know what is expected of them at point of sale.
Accounts payables or money owed by you to suppliers are another matter. Here you want to negotiate the most favorable payment terms. Whatever is agreed upon between you and your vendor, be sure to honor the agreement with prompt payment. In this manner you will be considered a valued customer, deserving of discounts and other special treatment.
You are well advised to create a twelve month cash flow analysis of income and expenses. You will incur both fixed and variable expenses. Fixed expenses are rents, utilities, payroll, taxes, etc. Variable expenses are repairs, restocking of inventory and the like. SCORE provides an excel spreadsheet that can be located online at https://www.score.org/resources/12-month-cash-flow-statement
The cash flow statement will allow you to see and plan for when various expense items come due. You should always include an additional ten percent for the unexpected, like an equipment breakdown. Each month replace the estimated income and expenses with actual income received and expense items paid.
Notice what is selling and what is not. Take a hard look at your inventory on hand. Pay special attention to items that have too long shelf life. Wholesale these items and bank the money you receive even if you must discount them for less than cost.
Establish a line of credit at your local bank. While this may increase your payables, it is a better option than falling behind on your just debts. If yours is a seasonal business, plan accordingly by establishing a cash reserve when business is booming. It is important to maintain a good credit rating.