Avoiding the End-of-Year Cash Flow Frenzy
Many companies find themselves scrambling at the end of the year to boost their cash flow. However, similar to most other areas of life, quick cash flow fixes are rarely lasting, and they oftentimes may do more harm than good in the end. The best way to improve cash flow is to implement practices all year long that will lead to a better cash flow statement in the end. The following are a few approaches that can help businesses achieve that goal.
Requiring Down Payment Upfront and Full Payment Upon Completion
Requiring a down payment from clients prior to beginning work enables a business to have the cash flow to fund its own projects instead of delaying projects or further diminishing existing cash flow while awaiting payment. Because available cash flow is directly related to the timing of a client’s payment, it is in a business’ best interest to require full payment as soon as possible as opposed to extending the payment period to 30 or 60 days post completion. Therefore, clients should be required to settle the payment balance upon completion if possible. However, for some businesses, industry norms and plausibility may dictate a longer payment period.
Check Clients’ Credit History
While performing a credit check is generally viewed as a precautionary step, doing so may mean the difference between being paid promptly after completing a service and waiting an extended period for cash to come in. When accounts are overdue, businesses are faced with the hardship of having extended their time and resources to fulfill their end of a contract without receiving compensation as anticipated. Clients who have a satisfactory credit history are more likely to pay on time, which means a lower risk of having an unexpected interruption or shortage of cash flow due to non-payment or delinquency.
Enlisting the Services of a Third Party for Collections
In the event that a client’s account becomes overdue, a business that has a set collection policy in place and follows through with the procedure is much more likely to recover the missing cash than a business that does not have a clear procedure for collecting past due accounts. Hiring a third party collections agent can help businesses recover past due payments without further exhausting their own time, energy, and resources to track down the missing payment.
With a little forethought and planning, businesses can improve cash flow throughout the year. Taking steps to improve cash flow all year long will eliminate the need for the mad dash to recover cash at the end of the fiscal year.
Gary Kaplan has been practicing as a Certified Public Accountant for 17 years. Gary is qualified in all aspects of accounting, business and personal tax and strategic planning. He listens to each client and helps them achieve their own, unique goals. Gary welcomes you to ask how his services can meet your business needs.
