There are many reasons collection agencies exist. And while many consumers do not like being on the receiving end of a communication from a collection agency, companies like ours provide a necessary service to organizations that have challenges in getting their customers and clients to pay or pay on time.
It does not matter what size your company is. You are always going to have issues around payments, invoices and getting cash in the door in a timely fashion. And there is one thing we say over and over again here at American Profit Recovery. If you are in business, people are going to owe you money. That is just a fact of operating a business of any size.
When customers do not pay on time or pay at all, that presents massive challenges for your business. The biggest issue it presents is a lack of positive cash flow.
What is cash flow?
Cash flow is a measurement of how money is moving in and out of your business. When you sell a product or service, customers and clients, hopefully, will pay you for what you provided to them. We say hopefully, because sometimes that’s just not the case. And if you have been in business for any length of time, this pretty much goes without saying. You know this to be true. There are essentially two parts the cash flow.
Cash coming into your business from customers, and cash going out in the form of expenses. That includes everything from rent, payroll, insurance, cost of goods and anything you need to run your business. We are pretty sure you know this, but it’s good to have a simple refresher every now and then. Getting help collecting on accounts receivables also contributes to your cash flow.
What cash flow means to a business
What does cash flow mean for your business? In a worst-case scenario, it can mean the difference between staying in business and shutting your doors. We have never seen a more concrete example of a lack of cash flow shutting a business down then in the era of COVID-19. Negative cash flow has decimated businesses across the country. And while most of it may not have anything to do with customers not paying, it shows what a lack of revenue can do to an organization. Could retrieving any late payments saved those businesses. We’ll never quite know.
Positive cash flow is the backbone of any business. It is the air that a business breathes to stay alive. Without it, a business cannot continue. Again if you are in business, you know this all too well but we feel the need to reinforce it because it means all the difference in the world for you and the people that rely on your business.
How cash flow can be improved
First, you need to understand cash flow in your business. If you are the slightest bit confused about the current status of your cash flow, check in with your accounting staff , and if you do not have staff, check in with your bookkeeper, your CPA, or hire both. If you do not have someone that is good with your numbers, it’s time to retain that professional. It will make all the difference in the world. You are running your business, and you will miss something eventually. In short know your numbers and know what they mean.
Second, make sure your business is invoicing on time. Never miss a cycle of invoicing. It all depends on your business and how you invoice. You may invoice monthly; you may invoice weekly. But never miss a time to invoice. Skipping invoicing customers will only snowball and not in a good way. And in all honesty, we have lost count at the number of times we’ve mentioned this here on our blog. But we cannot emphasize the importance of this small habit in your business.
Third, control your inventory and other costs. Depending on the size and complexity of your business will determine how many costs and expenses you need to monitor. Many of us get busy, we have many other things going on in our business life, and we just end up paying the bill when it comes in. However, you need to look at your expenses on a regular basis. See where cuts can be made or an adjustment can be worked out. If you are not careful, you may find out that you’ve been paying a bill for a long time and never knew it or used the services. Evaluate your cash going out all the time.
Improve your accounts receivables process
If you cannot seem to get customers to pay on time, or you do not have the internal resources to chase down payments, you really should consider hiring the right collection agency for your business. Find the right fit and find an agency that can work well with your business demands. There are local collection agencies, and there are national collection agencies. Choosing the right one can make a world of difference in your cash flow.
One of the must haves in our opinion when choosing someone to help with your accounts receivables, is to make sure they are treating your customers or clients with the respect they deserve. Everyone has a unique situation when it comes to paying their bills. While some may be avoiding paying you, there are many times when it was an oversight, or they need assistance in navigating their debt. Whoever you choose should not be getting on the phone and lecturing that customer for nonpayment. They should first seek to understand, and then develop a solution. That is what is going to help get you paid, and help you keep that customer for the long term.
Want more tips on cash flow in getting paid? Keep scrolling through our blog. We have plenty of articles that can help you navigate the ups and downs of getting paid and keeping cashflow positive.