Show Me The Money!

No Gravatar

We all know that cash flow is king.   The problem is that in this recession, cash flow seems to be closer to a trickle.  Bills are paid in months- not days.  Obviously, you need to collect what you are owed.  Raising prices is not the answer, since it does not get you your money sooner.

Before we talk about what we can do- we need to understand a few concepts about cash flow.  Most firms operate at 50 percent gross margins.  That means for every dollar you bill your customer, your gross profit (after the cost of goods and shipping) is about 50 cents. Then, you have to make payroll, pay rent for your offices, etc.  If you are a service business, then this pretty much ends the analysis.  But, if you manufacture or assemble a product, you have an additional issue.  You need to buy more raw materials to make your product.  Assuming your labor is minimal for the production (not very likely), that would mean you need to spend that 50 cents to buy more raw material to sell to your customer.  Oops, you are out of money.  Even if the raw materials are 30 cents, you only have 20 cents for labor, packaging, shipping- and you still have not covered rent, utilities or the like.  And, if your business is growing at 25% a year, you need 51 or 31 cents just to accommodate the raw materials.   You can see how cash flow becomes limiting to growth- and maybe even to stasis.

So, what can you do?  Well, one way is factoring- but with reputable firms.  In the past, many entities dealt with firms that would buy their invoices for 60 to 80 cents on the dollar.  We are certain such firms still exist.  But, unless your firm is near death’s door, why would you want to do business with them?  If you sell your invoice for 60 cents on the dollar, that leaves you 10 cents!   If you sell it for 80 cents, you have 30 to allocate.  As you can see, that does not let you really stay in business.

There are other factoring choices.  One with whom we have had experience is IFTI Factoring.  They have a simple formula (if you understand algebra; complex if you don’t J).   They generally provide 80 cents on the dollar for reputable customers with proof of delivery.  You are charged interest on that money  (definitely at prime PLUS!).  When the customer pays the invoice (which is paid to your company at their bank, with them having control), you receive credit and the loan is repaid.  You receive the balance of your funds.  Assuming your customers pay in 30 days, you can assume that the cost of your money is about 9 cents on the dollar. If they pay slower, your cost is more.  If they pay really slowly, your costs can reach 20 cents.  But, you still contact the customer.  You can try to cajole them to pay.  (If they are still buying from you, that is an easier proposition.)

Another choice is a new firm, BillFloat.  Right now, they are charging a set fee for each loan.  But, their loans are for small amounts- and they keep about 10%, plus a 3% interest rate.  You must pay the bill within 30 days.  If you receive your funds via credit card transactions, you can try to use AdvanceMe, which works off estimate credit card transactions per month  (from what we understand your credit card receipts have to be about $100K a year).  But, if you can be paid by credit card, you might be able to convince your customers to pay upon shipment.  That certainly cuts your costs down to the transaction fees charged by the processing firm you use.  (Costco members get very good rates.)

Of course, if you don’t bill- you don’t get paid.  This is more typical of the service firms, not those that supply goods or materials.  Bill.com,, GetHarvest.com, and FreshBooks.com  all have web-based billing systems for those firms that need to track time and bill accordingly.  .  Most of them work with accounting programs, so there is little extra work involved.  (We use a long-established time-tracking and invoicing program, instead.  One that lets us track our time and costs remotely, as well as directly on our computers.)

If you want to try to invoice your customer from the field, there are now point of sale systems that are reliable.  PocketBusinessTools has a reasonable system (less than $ 30 a month) that works off most smartphones, and has time tracking, expense sheets, contacts, and the like.  SageSpark has a free invoicing tool- and works with a payment system (see the next paragraph).

SquareUp offers a small device that works with your iPad, iPhone and Android systems to accept credit cards wherever you are.  Their fees are reasonable and the hardware is relatively error free.  Intuit has a similar system (GoPayment), as does SageSpark.com.  PayPal Mobile is not quite the same thing- your customer needs to log in and arrange for the payment.

So, you see- there are ways to handle the recession- and improve your cash flow!

Share this:
Share this page via Email Share this page via Stumble Upon Share this page via Digg this Share this page via Facebook Share this page via Twitter
Share