With all the current uncertainties in the world, no businesses are immune to the impact of COVID-19. Those that are struggling to stay afloat with low cash reserves or unstable cash flow, are particularly vulnerable.
The difference between the companies that survive a recession and those that don't? The businesses focused on managing their cash flow.
By adopting cash flow collections, billing, and payments best practices for your business, you can significantly improve your cash flow now, and you'll be more prepared moving forward.
Here are tips to help you get better at how you manage your business's cash flow now...
Collections are often the last thing anyone wants to do- especially during financial uncertainty.
However, getting paid is how you keep cash flow coming in. Even if you're not busy, get paid for the work that you’ve already finished.
Outstanding balances can seriously impact cash flow and hold your business back. By implementing a good collections strategy, you can improve the likelihood that you will get paid on time.
Follow The 3 F's of Collections...
Firm. Never end a call without a confirmed date.
You want to make sure you don't end any call without getting a firm date for the next step: either expected payment date (paid in full), upcoming payment arrangement dates, or at least a date when you can have the next conversation about payment due.
Friendly. Kindness goes a long way.
Provide the highest level of customer service to help clients through this process. Your goal is to make this as minimally stressful for them. Being friendly will make the customer feel more comfortable and eager to help you resolve the issue.
Focused. Overcome objectives and be prepared with answers.
Be ready to overcome objections and have the answers ready before you pick up the phone. Just like you train your staff to overcome the objections in the sales process, train your staff to overcome objections in collections.
Overcome The Three Biggest Objections
There are three big collection objections we typically see...
1. “The check is in the mail"
Your Answer: “Luckily, we don’t need the physical check anymore. Now with QuickBooks payments, the check information verifies the payment and enters the deposit without physically having the check.”
→ You no longer have to wait for the check to physically get delivered- all you need is the check number, the amount of the payee and their banking information. You can put this information right into QuickBooks and it enter it as a deposit (and it'll also confirm whether or not they really wrote the check.)
2. “I can pay you half.”
Your Answer: “Great, thank you, that helps! Let's get that info, then set a date for when we can expect the other half. If you're unsure, I'll check back next week on X date and time”
→ Make sure a firm date is set on when you will receive the other half of the payment.
3. “I can’t pay anyone right now. We are really trying to figure out how to hold onto our cash just to keep our people here."
Your Answer: “Okay, I understand, and we've been seeing this. But we also want to pay our people as well. Here's some options to help you resolve this: We now accept Credit Cards! and Payment plans can also be discussed. Which would work best for you?”
→ We recommend you turn on Intuit Payment Solutions. This feature has an automated merchant account service that's linked inside QuickBooks to be able to automatically send an email out to the client. This also shifts the risk of collections from your business to credit card company. It is a no brainer to get the money in your bank for such a small interest rate (3.5%).
Accept Credit Cards
A big pushback we get from businesses on accepting credit cards is,"I don't want to pay the fees”. The truth is, even in good times, unless you have really large invoices, it's cheaper than paying the combined costs of traditional methods. Some businesses still snail-mail out an invoice, wait to receive a payment by check, and when its late, then paying the bookkeeper pick up the phone to collect the money.
Implement a Receivable Management Tool
If collections is a big issue for you, you have a liability. If you use QuickBooks Accounting Software online, you can use a tool called Funding Gates®, which is a AR management portal that will help you automate the process of sending out the collection emails. You can make those emails get more direct progressively based on whether they are responsive.
Your Collections Strategy Starts on the dotted line...
Follow a Written Credit Policy
Going forward with any of your new work, make sure your proposal and your contract has a written credit policy.
Include these key components in your credit policy:
- Payment Terms: When is the balance due? Who is the person paying the bills?
- Late Fees: What are they, and when are they going to be charged? We recommend between 1.5% and 1.8% per month. The goal is not for you to earn interest income. The goal is for you to get that bill to the top of the pile.
- Legal Fees: Who will pay your attorney fees if you have to go to court?
Check Credit References
Don't let your client's cash flow problems become your cash flow problems. If you're going to lend money, act like a bank. Check all references, do a background check, and check their credit rating.
Make sure before you issue the loan and start working on an account, the client can actually pay you. Your cash flow problems will only continue to get worse if you do work for people that don't have the ability to pay your payroll.
Get The Deposit Before Work Begins
We recommend a 50% deposit on every job.
Why 50%? If you have a 40% to 60% profit margin, then you're getting paid for the labor cost and materials before you actually start the work.
Let clients know that in order to provide great prices, great services and a great level of support- you’re only able to do this because you’ve got great suppliers. A deposit makes sure you can continue to provide your clients with the level of care they’re used to.
Implementing more frequent and effective billing process can improve your cash flow by aligning clients' payment for services with your service related expenses.
Bill As Soon As Possible
The timing of how often you send invoices has a significant impact on your cash flow. Most businesses like to do billing monthly because it's easier for the bookkeeper and the accountant to collect. But, if you're worried about cash flow, we strongly recommend switching to a weekly billing or bill as quickly as you can. Bill when you finish a milestone.
You want to get an invoice into your client's hands and don't wait for the month.
Send An Invoice On The Weekend
You are more likely to get paid 10 days faster by sending an invoice out on the weekends. Why? Because the client will surmise psychologically- if you took the time to send out an invoice on the weekend, you are serious about getting paid.
This doesn’t mean you have to be working on the weekends- you can automate your client’s billing through Intuit Payment Solutions.
Automate and Streamline Billing
Streamlining the billing process will speed up your cash flow more than anything else. QuickBooks Accounting Software Intuit Payment Solutions makes this easy. You can automate the process of getting timesheets and payroll data into your accounting system.
Regardless of whether you do billing by time or not, you'll be able to see how much work has been done and have that information at your fingertips.
The faster you can get the time into the accounting system, then it's already there for the billing to be done.
The final piece of the cash flow puzzle is payment processes. Here are a few tips to streamline your payment processes.
Be Transparent and Honest
Call your bank, landlord, and supplier. It's time to have thick skin, be honest, proactive, and pick the phone up to say "Here's where I'm at."
This is not a reflection on you as a business person. Everyone is going through this, and the banks have been flushed with money specifically to be able to work with you.
This is not a time not to go dark with your landlord, your vendors, and your bank. Let them know exactly what the situation is so they can plan accordingly.
If you have to pay bills, pay slowly (but always on-time).
Some bookkeepers have the mindset of: "I need to have a clean desk rule: I want to pay bills immediately and get them out the door and off my desk as soon as they come in."
A good practice is to hold onto your cash as until it's time to pay, and make sure you have enough money to pay the people that earn your revenue.
We recommend implementing Bill.com, an electronic bill payment service, that has an integration with QuickBooks and almost every other accounting system. It helps with timing and reduces the steps in the bill payment process - improving efficiency.
When bill payment is automated, invoice data only has to be entered once into the accounting system, saving time and money. Businesses can cut bill payment time in half. As a result, vendors can rejoice by being paid 2-3x faster electronically than with the manual method.
As for the cost savings, The Wall Street Journal estimated that the average small business spends $12 to pay a bill. By using Bill.com to pay bills electronically, the cost to pay a bill can be slashed to around $1.50.
→We saved about $2,600 per client per year using bill.com. We also process AP 2.5 times faster with the same amount of people. It used to cost us $12 to create and process each check. We'd lose about $58,000 a year if we went back to the old, manual processes and kept fees the same.
Manage Interest Rate Rules
A good controller puts their most expensive debt at the top. If you have to pay the bills, make sure you're paying the ones that have the highest interest rates first. Any available cash you have should be used to pay your off credit card. Every day that you pay it down, that's less interest you're paying to the credit card company in the future.
Auditing Every Expense
Now is the time to go through your credit card expenses line by line.
Review everything and if it's not mandatory, cancel it. Those recurring "$50 dollar a month" subscriptions charges add up!
If the amount of cash you bring in is less than the amount of cash you're paying out, you're going to eat into your reserves.
Create (or Revise) Your Cash Fl0w Forecast
Without a real sense of your cash flow, you cannot move forward.
You need to have a cash flow forecast for your business. Create (or revise your last forecast)- your projected sources and uses of cash. Now is the time your cash flow forecast needs to be reviewed and updated to help you better prepare for the future. You'll be able to navigate the road ahead and recover more quickly.
For help in getting started: Use this 13-week cash flow forecast template - It's an excel spreadsheet that is easy to use. We’ve even included a video to help walk you through it.