Cash Flow: What You Need To Know

Manage your cash flow effectively, and you'll have some breathing room to prosper.

Cash Flow: What You Need To Know
Lee Distad · April 2, 2009

As the mood in the marketplace seems to vary day by day, it’s important that you keep your company’s situation under control.

So, in order to keep your business healthy, let’s review some best practices for times like these.

Managing Your Receivables

No one likes working for free. Ensuring that your receivables are up to date requires daily vigilance.

But failing to maintain an adequate receivables schedule is a common problem amongst integration companies.

The reality is that nobody wants to pay their bill unless they’re asked. At my old job, I took charge of an MDU builder account and discovered that we hadn’t given them an invoice for two years.

Fortunately, my relationship with our liaison there was cordial, and when I let him know, his response was “Yeah, I always thought that was odd.”

Still, once I got our act together and submitted all of our outstanding invoices, we were paid up and current on two years worth of work in 45 days. But it never should have gotten that far.

Neither you as the general manager nor your office manger or bookkeeper have the personal relationship with your clients necessary to take care of billing. And if you did, you seldom have the time.

By far, the best solution I’ve encountered is to place collecting receivables squarely on the heads of your salesmen. They have a vested interest in collecting invoices: they need to do that in order to get paid!

As a manager, confer with them in regular business meetings so that you have a clear picture of their sales and billing funnels to get a handle on your cash flow for the next few quarters.

Managing Your Payables

As a business manager, you need to prioritize your company’s payment schedules.

The number one rule is to pay your employees, and yourself, first. This is small business 101. Even if you’re in a cash crunch, nothing will cause employee loyalty to evaporate faster than asking for their patience and forbearance on payday.

After taking care of your employees, you want to keep showroom doors open and the lights on. It’s hard to impress prospective clients when the power’s been cut off. I’m being glib, obviously, but the utility companies have almost as little patience as your employees.

With regard to suppliers, while you always want to keep them happy, you also need to be flexible in balancing their priority for payment.

With vendors who offer prompt payment discounts (PPDs), look at your books and determine if the benefit to your bottom line from PPDs is a better deal than carrying your terms, such as 30, 60, or 90 days to their conclusion, as it relates to cash flow and credit costs.

It may well vary on a case-by-case basis.

Bank Lines Of Credit: Be Careful!

In addition to your credit with your vendors, having a line of credit at your financial institution is a fact of life.

Managing how your company uses, however,  can be a matter of life or death.

Dipping too often into your line of credit during lean cash flow times is a bad habit, and one that can sink you if you stop treating it as a revolving facility. If you start to maintain a permanent balance, you may find that when you really need to fall back on it, it’s not there.

Add to that the uncertainty in the financial marketplace, and news reports that banks are slashing individual and corporate credit lines, and you may be in for a rude surprise.

Saving Money Is Only Part Of The Equation

The reality is that cost-cutting and saving money alone won’t keep your business afloat. You make money by making money.

Adequately controlling your payables and receivables is crucial, certainly, but most important of all is going out and generating business. The best processes won’t save you if the well dries up and your company is living on progress payments from current jobs.

Regardless of the market, your people still need to stay in high gear, continue to prospect, and your company needs to evolve its niche in order to find a place where it can prosper.

Manage your cash flow effectively, and you’ll have some breathing room to do just that.

Lee Distad is a freelance CEDIA Certified Professional Designer who offers design and process consultation to firms in the Custom Installation industry, as well as copy writing and other professional writing services. Lee’s business and industry blog can be read at

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