The Cash Flow Blog

Credit is tight.

Small businesses – large ones too – are learning quickly lines of credit can shorten overnight.  And without notice.

This article from WashingtonPost.com – Tight Credit Squeezing Small Businesses – has a lot in it for small businesses to learn and be aware of.   The point of the article is a level of relief is on the way for businesses in need of credit – lenders participating in SBA programs will soon have more latitude to make money available to more businesses.  That’s good news.

But there are other things in the article that led me to share it with you – the story of a business owner who learned overnight his credit lines were reduced from $56,000 to $1,000.  Ouch!  Credit line reductions can have a devastating affect on a business – reduced capability to purchase raw materials and inventory, inability to meet payroll, etc.

What stood out in the story is a reminder credit reductions happen without notice.  And the only reason the business owner in the story learned about the reduction when it happened is because he subscribed to a credit monitoring service.

Another thing that stood out is the closing paragraph – character still counts.

“The reason we made the loan was character, although of course we closely look at credit and other things as well,” said Vickers, who was impressed with Fochler’s ability to increase sales yearly and his accuracy in reporting his taxes. “His knowledge of the industry and his passion and dedication made it clear to me that he has a strong shot at succeeding.

“He’s the perfect client.”

Give the article a read.  There’s good insight to how lending institutions are operating in today’s market and good information on changes with SBA loans beginning February 2009.

Invoicing a customer is merely a step in the getting paid process.  When you think about it, invoicing is nothing more than a formatted message from vendor to customer saying the vendor thinks it’s time the customer paid for whatever good or service has been or is about to be delivered.  It’s a request for money.

If you’re a customer, when should you pay an invoice?

For many invoices this is made perfectly clear by displaying an easy to read and understand date.  But that’s not the case for all invoices.

Here are some common problems I’ve seen with invoices relative to a customer deciding when to pay:

• No payment due date – Believe it or not, this is not uncommon.  I’ve seen and received invoices with no stated date when payment is due.  So, when do you pay an invoice with no due date?  Most won’t pay on receipt, many won’t pay within two weeks, and some won’t pay at all.  It’s hard to be late paying an invoice that’s never due.
• NET terms – This too is common, payment on NETx terms (x= 15, 20, 30, etc. days).  The problem is many customers don’t know when the clock starts.  You may think the clock started when you sent the invoice, using the invoice date as Day 0, but what does your customer think?  Differing views of Day 0 can cause delay of payment by weeks or more, depending on your agreed terms.  In a cash flow crisis, a few days delayed getting paid can mean a lot and have negative consequences.
• Due at project completion – I love this one.  What constitutes a project and when is it complete?  Who decides when it’s complete and by what criteria?  These are all things that should be decided before you begin a project with such terms.

Getting paid in a timely manner is critical to good cash flow management.  You and your customer need to have a common understanding of when you should expect to receive payment.  Be sure your payment terms and expectations are crystal clear.  The best practice is to list a date when payment is due – dates are hard to misinterpret.

What invoicing terms have you seen as a problem?  What best practices would you recommend to timely getting paid.

Here is a nice low cost free PDF creator – PDFCreator.  It’s a great PDF solution that doesn’t cost a dime.  Use every open source solution like this you can find – a great way to cut software expenses.