It should be no secret to anyone owning or running a business. It is slowly getting more expensive to operate a profitable business and it is not getting any less costly. Costs associated with just about everything on your expense sheet have gone up during the past 12 months.
And as you’ve also seen, the pandemic caused many people to spend more money. We have seen this mostly in the form of home improvements as well as other items to make working and living at home more enjoyable. While statistics have shown that people have saved more recently, they have also been willing to purchase more.
Financial stress is a real thing, especially for those operating a small business. If you are going to operate a profitable business and improve cash flow in 2022, your business must get more assertive in getting people to pay on time as well as improving your debt collection procedures for 2022.
There is always an increased need to button up internal accounts receivable procedures after the holiday season. People are spending more money, placing more of their purchases on credit, and overextending themselves. What happens in January and February? All those credit card payments show up in their mailbox. People now have more bills to pay at the beginning of the year. But of course, their other bills are due as well. And many people perform a juggling act with their finances during the first part of the year. When it comes to the first quarter of the year, your business cannot miss a beat when it comes to invoicing and following up with customers that have not paid.
The rising cost of goods
Most industries we know of at this point are dealing with substantial increases in the cost of goods and materials. If you have embarked on any home improvement project recently, then you know exactly what we’re talking about. And we have spoken to many businesses that are trying desperately to control costs and at the same time remain profitable. If you are running a business and reading this, we are not telling you anything new. What we are telling you is that you need to take a hard look at what you are charging your customers for and constantly review your pricing.
You may have decided over the years not to pass on small cost increases to your customers. But if you haven’t already, you’ll be faced with the decision to increase your fees or rates in order to remain profitable and keep cash flow positive. Many news reports have indicated that we will be dealing with cost increases for a while. If you have been shy about raising prices, you may need to get more comfortable with it.
Labor costs rising
Another fact that is probably not new to you is the rising cost of maintaining an effective workforce in your business. Not only has the minimum wage increased in several states across the country but because of a more competitive labor market, businesses are finding they need to increase salaries to attract and retain talent. Health care costs and other benefits are also becoming more costly for many businesses. And because of the pandemic, your business may have purchased more equipment to allow your employees to work remotely.
If you are going to maintain a competitive workforce and retain quality employees, your business is going to have to get much more vigilant in getting your customers to pay and when they do not, implement the proper debt collection procedures.
Less labor means more outsourcing, including debt collections
Using the services of a debt collection agency is always a good idea for your business but it is going to become even more vital in the coming year. With all the challenges that we have listed above, comes the fact that the labor market continues to be tight. And while many businesses have seen an increase in revenue and sales, the employees that we do have in our companies are working hard to keep up with the demands. And there is one area that you don’t want to pull away from and that is cash flow.
We always recommend that businesses of all sizes do what they can with internal resources to resolve a debt with the customer. And when those issues cannot be resolved, it’s time to hand off those unpaid invoices to your collection professionals.
But for this coming year, you should consider engaging your collection agency sooner in the accounts receivable process. If you have historically sent accounts that need to be recovered at the 90-day mark, you may want to consider backing that up and send them over to your collection agency at 60 days. We have always advocated implementing collection procedures earlier in the delinquency, but it will become so much more important in the year to come.
One reason is that you want to preserve your internal resources for other important tasks and projects. But the second reason is that with all the rising costs and expenses your business needs to manage, cash flow will become a critical component to your success in 2022. You may be pleasantly surprised to see the results of handing off your unpaid invoices much earlier.
Are you ready to get your business heading in the right direction for the coming year? Contact our team today to get started on improving your cash flow!