Cash Flow Tips
Cash flow problems can hurt your business. Here are a few basic tips for keeping your cash flow healthy.

Here are some basic principles to remember regarding terms. Understand the time between purchasing raw products and billing finished products.

If your vendors extend you terms for raw goods and expect to be paid in 30 days, then you have 30 days to produce the finished product, collect from your customer and pay for the raw goods you purchased.

If you also offer net 30 terms to your customer, you will have to come up with the cash to pay your vendors on time, or you may incur finance charges or even lose your line of credit.

Get deposits.
Most people in the advertising industry are producing custom work. At the very least, you should get a deposit for the estimated raw material and labor costs. That way, if the customer changes their mind or decides to scrap the project, your costs are covered. After all, you can't sell their "custom" job to someone else.

Establish a credit limit.
If you must offer terms to some customers, establish a credit limit.

It works like this:

• How much of your money are you willing to loan to a customer for (net) 30 days? Have you checked their credit? Even if they have a AAA rating the question remains How much can your business take a hit for if catastrophe strikes? Once you have established a customer's credit limit, if they exceed it, get payment before processing more jobs.
  
  If a customer wants a higher line of credit than you are willing to give them, offer them smart credit building alternatives such as paying by credit card.
  
  Remember, some companies can't pay their existing vendors on time and they can't get any new lines of credit, so they want to do business with you instead. This is not the kind of customer you want, so be careful to do your homework.
  
  
• Collect when the customer has the finished job. Net terms were created to give retailers a chance to sell the goods they purchased for stock from wholesalers or manufacturers.
  
  How many retail storefronts in other industries do you know that offer net terms? If you are producing a job in multiple stages, or a job that will take a long time to produce, then take the time to layout payment terms in your proposal.
  
  
• Lay it on the table. Customers appreciate knowing up front, what they are going to be charged for. If you don't already have one, create a list of payment guidelines and "intangible" services your company charges for such as art preparation, file correction, and in-production changes.
  
  Review it with your customer before you get involved with the job. Make sure your employees understand the guidelines too. This helps instill good practices and confidence in the management.

Signs of Trouble
Watch for these red flags that could spell trouble ahead:

• Aging receivables. Are you noticing a pattern of later and later payments from your customers? An average increase of just two days a month or more can add up quickly and damage your cash flow. Be particularly careful of slowdowns from your larger customers. If this happens, reevaluate the credit lines you extend to your customers and explore payment by credit card alternatives.
• Debt Problems. Something may be amiss with your cash flow if you are suddenly having trouble keeping up with your principle and interest payments or your business related credit card charges are increasing.
• Financing interest charges. Are you paying your bills late and getting hit for interest or finance charges? This eats into your profit, slows cash flow, and spells trouble ahead if you don't get it under control.
• Afraid to face the bad news? Don't ignore aging receivable reports or tough decisions such as down-sizing. Instead, examine where the problems stem from, make smart decisions and policy changes to keep your business out of harm's way, and set goals to move forward.

The benefits of Factoring
Or in layman's terms, selling your invoices. Mastercard® and Visa® are the world's largest factors for retail business. When you accept a payment by credit card, you are essentially selling your invoice for cost of about 2.5% of the total amount.

There are many benefits to offering this to your customers, including increased cash flow for your business and helping your customer establish better credit. For more information on the benefits, click over to our page on "Establishing better credit."

Accounts Receivable Bill Promptly.
If you extend terms, invoice for your products the minute they leave your door. The longer you wait, the longer it will take to get paid.

Accept credit cards. Talk to your bank about setting up a merchant account. The cost to your customer is zero. The cost to you is roughly 2.5%, however the money is in your account within 48 to 72 hours.

And the customer still gets 30 days to pay their credit card bill. For more reasons why you should offer and customers should use credit cards, see"Establishing better credit."

Track your receivables.
Keep a close eye on who is paying you late. If you haven't received payment on time, make a friendly reminder call on the due date. Try to find out why they are late. This will help you judge whether they are having financial problems or there is another problem that you don't know about.

Collections.
If your customer is overdue, get paid before processing any more work. If it is an ongoing project, explain that there will be a delay until prompt payments are resumed. The later they are the more calls you should make. Assess finance charges after net 30 or 45 days.

If you are financing their company, shouldn't you make the interest that you are most likely paying on your line of credit? Companies who stay on top of overdue accounts and assess finance charges are likely to get paid before those that don't.

Involve top management.
Make sure key principles are updated weekly on outstanding receivables. It's amazing how effective a collections call from the company's owner can be rather than from an accounting clerk. Try this whenever receivables age past 45 days.

Accounts Payable
Time your payments strictly according to due dates.
You will get better service and attention from your vendors, and avoid finance charges if you pay them on time. Set up weekly payment schedules to save time making payments.

Minimize large outflows.
Consider scheduling payroll biweekly and other outstanding bills on off-weeks.

Avoid interest charges.
If you are incurring finance or interest charges due to delinquent receivables, get on top of it quickly. This situation eats into your profit, slows cash flow, and should raise a red flag.

Call your vendors.
If you have good relationships with your suppliers, it can't hurt to ask for a payment extension. Talk to your bank about consolidating debt, especially if you have large outstanding credit card or other high interest loans.

Establishing better credit
Consolidating and using your bank to get more and bigger lines of credit.

Nine reasons to lease
There are many reasons to lease, including improving cash flow, credit, and flexibility.