The Cash Flow Blog

It’s obvious when you think about it.   But it’s fairly common.  I’m talking about NOT including a payment due date on an invoice.

The answer to the question of when you pay an invoice that’s never due — an invoice without a due date — is possibly never.  That’s what I’ve found working with a couple clients who unwittingly sent invoices month-after-month without an expected payment date.

In one case, simply putting a due date on the invoice reduced monthly accounts receivable by a little over 70%!

So, be sure you have a date certain on each invoice when payment is due.  A date certain means a clearly stated date instead of terms such as NET15.  NET15-type dates beg the question of when does the 15 days start? Dates certain are non-interpretive — as such they’re more closely followed and acted on.

Good luck!

This isn’t for every vendor and customer, but a quick way to pump some money into your business is to discount a receivable.  I’ve done it before — creating a win/win situation where both vendor and customer walk away thinking they got a great deal.

Here’s how it works

Let’s say you have a receivable for a particular client — a term sale you made with payments outstanding.  For this example, let’s say your customer owes you $3000 on a service you provide.  And let’s pretend that payment in full is  due three months form now — $1000 payable each month for three months.

Let’s also pretend your business is in deep need for money.  You have bills to pay and not enough money to pay everyone.

In this example, what you can do is offer to discount the receivable in exchange for immediate payment. An offer might be to escalate payments in exchange for a 15% discount — or greater.  Not everyone will be interested in such an offer, but some will.

The thought is to look at the money you have coming in and think creatively to bring it in faster.

Have you discounted a receivable or escalated payment in exchange for a discount?  If so, was it win/win?  Would you do it again?

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.

I’ve been thinking today about cash flow.  More specific, the elements of cash flow and the timing of revenue and expense. As I use to write The Cash Flow Blog for AllBusiness.com, I think of cash flow occasionally – at least once a month

The cash flow work I did with Guardian Medical Group, has stuck in my mind. I really enjoyed the work I did with Guardian. The secret to our success was the speed at which they implemented suggestions. Their execution was stellar.

We had calls each Tuesday at 11AM Pacific. The calls lasted about an hour, sometimes longer, sometimes shorter, it depended on what we were discussing and how soon we nailed-down an action. Recommendations made in those calls were without fail implemented by our next conversation.

A lesson from that experience is great ideas and action plans are worthless without execution. Taking action is the key to success.

Back to what I was thinking about this morning – a critical element of cash flow is the timing and availability of cash. It was this particular aspect of cash flow I focused on with Guardian.

Guardian’s challenge wasn’t making money or managing expenses.  Their challenge was receiving and having access to money in the time necessary to offset expenses. Their cash flow woes led to financed operations and artificial limits to future business plans.

The reason I jumped on Guardian’s accounts receivable was because it was so large. Making a few changes to their billing practice and process promised to bring money into the business faster, solving their cash flow problem. It worked incredibly fast – measurable results occurred within one billing cycle.

Time to cash is the key to the revenue piece of the cash flow equation. You have to make the sale and collect money before you can pay expenses and service debt. For companies with a small or nonexistent cash reserve, this is a harrowing reality.

When I think of time to cash, a number of things cross my mind:

• lead generation
• sales cycle
• invoicing
• customer payment cycle
• access to cash after receipt

When you forecast cash, all of these things must be considered. If you need money in 30, 60 or 90 days, you have to understand where you are in each opportunity and how long it typically takes to get from you are to cash you can spend.

This is why having ongoing marketing and lead generation campaigns are so important. You don’t want to find yourself in the position of needing cash and have to factor lead generation into your plan. You should always have a healthy pipeline of leads. Likewise, you don’t want to procrastinate or unnecessarily delay invoicing and receiving payments.

Depending on the quality of the receivable, factoring is an option for some companies.

Beyond the obvious, revenue has an interesting role in cash flow.

Not all revenue is alike. Margins and time are the big differences. Revenue associated with lesser expense is more valuable relative to cash flow, as is revenue that occurs faster. Of the three ways to create revenue -  new customers, increased transaction value, and repeat business – repeat business is most closely associated with higher margins and time to cash.

If there’s something to take from this post, it’s likely this – you need to keep your focus on cash flow in your business. The time to worry about cash isn’t when you need it. By that time your options are few and often come with consequences. Here are some broad things to keep in mind:

• Always have lead generation campaigns underway
• Offer multiple payment options – check, bank transfer, debit and credit cards, etc.
• Make it clear when payment(s) are due
• Don’t cloud payment terms and conditions
• Send invoices on a routine – no procrastination
• Communicate early with a customer who hasn’t paid
• Don’t overestimate the speed at which invoices will be paid and money will be available
• Maximize the revenue potential of every sale and every customer

Is there anything you’d add to my list?