What started as a trickle during the economic downturn has turned into a flood as companies have extended their vendor terms to 90 and even 120 days or longer. As a result, small businesses essentially have to make no-interest loans to their customers.
“With the growing trend toward longer payment terms, now is probably a good time to focus on smart cash management strategies that can help boost your company’s cash flow,” said David Cameron, senior vice president and head of Business Banking at City National Bank.
Keep the Cash Flowing
Here are a few strategies for accelerating receivables:
Collect up front. Depending on your industry, you may be able to require some form of prepayment before services are rendered or products are shipped. Not only does your cash flow receive a boost, but you’ll also be reducing collection uncertainty in the future.
Track receivables by age. Generate a receivable aging report and track accounts by time period (e.g., 0–30 days, 30–60 days, etc.). Knowing which customers’ accounts are past due and how late their payments are will help you focus collection efforts where they will do the most good.
Put your CRM to work. See if you can use your customer relationship management software to send automated statements to clients reminding them of payment due dates.
Make it (very) easy to pay. Encourage electronic payment via the Automated Clearing House network. You’ll automate and expedite collection of your receivables while making it easier for customers to pay (and less likely that the check will be “lost in the mail”).
Dot your I’s. Make sure you understand each client’s specific procedures for formatting and submitting invoices, and make sure you follow them to a “T.”
Make the call. Consider speaking with someone in the client’s accounts payable department a few days before payment is due just to make sure your invoice is scheduled to be paid, especially with large invoices.
Move quickly on past-due accounts. Begin actively pursuing collection the first day a receivable becomes past due. Start with a gentle reminder letter or email, followed by more sternly worded communications and phone calls, if necessary. And, don’t restrict collections activity to your accounting department — ask your sales force to use their established relationships with clients to help in the process.
Despite your best efforts, you may still find yourself having to finance the extended payment terms of clients and customers. City National offers a full line of small business lines of credit, including a revolving line of credit for short-term working capital needs as well as a business equity line that is secured by the business owner’s residential property.
Loans and lines of credit are subject to credit approval. First or Second Trust Deed on owner-occupied single-family residence (SFR), including 1-4 units (California and Nevada properties only, including secondary homes). Ineligible properties include manufactured and mobile homes, mixed use properties, properties listed for sale, and vacant land. City National Bank, as a matter of policy, does not give tax, accounting, regulatory or legal advice. The effectiveness of the strategies presented in this document will depend on the unique characteristics of your situation and on a number of complex factors. Rules and Regulations in the areas of law, tax and accounting are subject to change and open to varying interpretations. The strategies presented in this document were not intended to be used, and cannot be used, for the purpose of avoiding any tax penalties that may be imposed. The strategies were not written to support the promotion or marketing to another person of any transaction or matter addressed. Before implementation, you should consult your own advisors on the tax, accounting and legal implications of the proposed strategies based on your particular circumstances. The foregoing information is provided by City National Bank (CNB). Unless otherwise stated, opinions expressed are those of the respective authors and not necessarily those of CNB. The information is provided without warranty and no recommendation or endorsement by CNB is intended or should be inferred unless specifically stated.
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