We all know that cash flow is king when it comes to business. Sure, you might have proven yourself to be a profitable company, but that doesn’t mean you’re clear of bankruptcy if your cash flow starts to run into problems. As such, it is vital that you have the right amount of cash in the right places at the right time. This is where debt collection can provide some serious aid – not just to your cash flow, but to reducing bad debt write-offs and provisioning as well.
Profit on paper isn’t enough
Just because your books show a nice little profit doesn’t necessarily mean you’re winning the business game. If you’re waiting for payments to come through from your sales, your cash flow will inevitably experience a negative impact. Worse still, there’s a good chance you’ve already paid for your stock and staff, right? Without the necessary cash in the kitty, you’re going to struggle to stay afloat.
While cash can be sourced from other avenues like capital investment and borrowings, there’s no doubt that profit is the first choice for generating money. As such, the success of your business depends heavily upon your customers’ payments.
What affects your cash flow?
There are three key pillars that businesses should pay attention to when it comes to safeguarding their cash flow:
- Credit policy – it is vital to implement a solid credit policy. A number of factors should play a part in determining your credit policy: you need to understand your customer, assess the risks of entering business with them, and collect key information such as years spent in business, purchasing expectations and a credit report.
- Terms – payment terms must be clearly defined, with all protocol and relevant parameters outlined. Some terms that are particularly crucial for protecting your cash flow include payment dates and late-payment penalties. Creating and enforcing terms and conditions is imperative to supporting your cash flow, so make sure this information is clearly stated on each invoice you send out.
- Accounts receivable – put simply, an increase in your accounts receivable inevitably hurts your cash flow. A slow-paying debtor means more cash remains locked-up, while the sooner the payment is made, the faster the flow of cash. As such, it’s important to have a proper accounts system in place – online packages such as Xero have built-in accounts receivable components to help keep you on-track and up-to-date.
How can a debt collection agency help maximise your cash flow?
If you’re facing problems with your cash flow, it might be time to leverage the services of a debt collection agency. A debt collector can comb through your internal accounts, identify missing payments and reach out to those who owe you money.