Still in a Cash Crunch

As I’ve been cleaning up client books for tax purposes, there are two things that stand out about being a successful small business in 2010 (and therefore hopefully in 2011).  One is that all that cost cutting and focus on creative ways to get around the recession are starting to pay off in better margins.  The other is that cash flow issues surrounding late payments are still a big problem.  Everyone I looked at (and it’s mostly companies that have year over year revenue and margin growth) had more, older receivables than even in previous years.

I don’t see a statistically valid sample, (though at this point in tax season it sure feels like it) but among those who do see enough data to show definitive trendsetting in action, the conclusions are the same. 

According to an article in Bloomberg Businessweek, average accounts receivable collection for private companies went up by four days between 2009 and 2010 to 27 days.  If you’re waiting for payment from a large company, find something to do while you wait.  The average S&P 500 company pays in 59 days and collects in 46 days.  The data also shows credit agreements don’t necessarily help.  In 2010 average delinquent dollars went up from  12.5% to 14.3%. 

So besides being frustrated, what should your business do to improve cash flow.  Unfortunately it all comes down to the “eat your vegetables” common sense advice that is so common in business.  The fact is, if you pay attention to cash flow it will improve.  Some fundamentals to work on:

-           Check the buyer’s credit before you extend it

-          Get some payment in advance

-          Bill promptly and mention timely payment

-          Follow up on outstanding receivables

-          Reconcile your bank statement and your receivables every month

o   Notice repeat offenders and consider if the relationship is a net positive or negative to you.

§  Communicate the results of this analysis to the specific customer(s)

o   The reverse is also true.  Thank prompt payers with discounts and words (if applicable). As the mom of a 12-year-old I will tell you repeated positive reinforcement can institutionalizes good behavior.  (Haven’t found the miracle cure for the reverse problem.)

While late payers are an insidious problem that cost you serious money, paying attention and responding persistently can make all the difference.