What Can Cash Flow Optimization Do For You?

It may sound pretty fancy, but the concept is one that most businesses want desperately these days – make and keep as much of the money they earn as possible.  An Accountant or Tax Attorney can help businesses with the year-end issues and deal with the governmental details, but what about the rest of the year?  There are simple things you can do by answering these questions:

1.  Do you use Contracts with your clients or customers for your products or services?  Deals are made on a daily basis with a handshake and a promise based on reputation.  However, to make sure you are protected, remember the old adage, “If it’s not in writing, it doesn’t exist.”  The agreement doesn’t have to be multiple pages, completed in triplicate and duly notarized.  In essence, all you really need is some basic information from the client or customer (name, address, phone number, contact name) and a paragraph indicating the product or service covered by the contract, the terms of the sale, any special offers or conditions, and what you as the vendor promise to deliver for the agreed upon price.  One thing that is vital is a signature and date from an AUTHORIZED representative of each company, yours as well as the client’s.  The contract does you no good if the secretary signs it and he or she is not authorized to enter into contracts on behalf of the company.  Know who you are dealing with and if that person is allowed to commit that company to a financial obligation.

2.  Have you developed policies, procedures or guidelines for your Accounts Receivable Department to follow when contacting customers or clients regarding past due balances?  We’ve discussed previously that Credit and Collections only sees things in shades of gray so hard-and-fast policies and procedures are not recommended, but those responsible for collecting on debts need to know the perimeters in which to operate.  Not every client or customer is the same and therefore, the calls made to each client may vary slightly or considerably, depending on how important that client is to your business.  While clients should not dictate terms to YOU, it is important to offer some leeway to those “key customers” in order to keep their orders flowing which supports your bottom line.  Identify the exceptions first, then develop a system of calls, letters, e-mails, etc. that will achieve your desired results.

3.  Have you decided what “past due” means to your business?  Is an invoice past due if it’s one day late, thirty days late, or ninety days late?  It all depends on your cash flow and what risk you’re willing to take to in order to offer convenience to your customers or clients.  Also, you don’t want your Accounts Receivable person calling one of your “Key Customers” about a debt that is only a few days old and asking for payment when you’ve determined that customer has thirty days to pay their invoices. 

4.  Who in your organization will handle “escalated issues?”  Does the buck stop with you or can your Office Manager deal with clients who are experiencing cash flow issues or those claiming disputes?  It is important that dealing with the money issues be assigned to one (or more, depending on volume) employee in your organization and give that person the latitude to make arrangements or resolve disputes on the fly.  Remember, the more flexibility you give that person, the more quickly problems can be resolved.  Pick a dollar amount you are comfortable with and use that as a ceiling for the Accounts Receivable Department ‘s authorization to resolve.  Anything that falls outside that amount needs to be brought to you or their supervisor’s attention before a settlement or arrangement can be made with a customer or client.

If you can establish guidelines for the questions above, you’re well on your way to improving your cash flow while protecting your assets.  Remember, there are companies available to handle creating these guidelines for you and it may be worth your time and money to outsource that function to a professional.  Be prepared to answer those questions so those folks can do their jobs efficiently for you.

You don’t have to be good at everything as a business owner – identify your strengths and surround yourself with quality professionals to handle the rest.  You just may sleep better at night…

A Cautionary Tale – Why Accountants Don’t Make Good Credit Professionals

Don’t get me wrong – I love accountants as much as the next person; some of them are very good friends of mine, but I want to share something with you that illustrates why you do NOT want an accountant in charge of your Credit and Collections Policies.

As I was offering some assistance to a Fortune 500 company in an advisory capacity, I came across multiple examples of very small balances that had aged significantly that the regular Collector did not have time to pursue vigorously.  In a perfect world, EVERY account would receive the same treatment and attention, but I’ve never been able to find that perfect world so I’ve had to adapt my thinking to this real world that we inhabit.

Part of the work I was doing at this company was to review their aging for items that were counter-productive to the time management of the Collectors.  This including finding small balances (under $100) that had been on that aging for more than 400 days to determine whether or not they could be collected at all.  Most of the accounts had contact by the Collector with the responsible party and for one reason or another, the invoice had never been paid due to a dispute, an oversight, or some other reason cited in the notes on the account that were dutifully recorded over time.

Per the instructions I was given, I sent an e-mail to the person in charge of adjustments for this company and below is an actual response I received…I’ve changed the names to protect the innocent (and guilty) parties involved:

“Kim – It is not up to Joe to decide if it’s too small to worry about.  I cannot clear any fuel surcharges without Jack Smith’s authorization.  He has a little more clout that (sic) Joe since he’s VP of Sales.  You will need to contact the territory manager and have him write up a fuel surcharge termination form, approved by the Regional sales manager, and then I’ll send to Jack for his approval.  Until that time, it needs to stay on the account.  If someone else clears it, they better have the authorization for SOX (Sarbanes Oxley legislation for approved Accounting practices as they relate to publicly traded companies), because I’ll throw them under the bus so fast there won’t be time for skid marks on the road!  Not your problem I know!!!  I just don’t like it when we don’t follow procedures that have my name on it!  Thanks, Mary.”

Where do I begin?  First of all, there has to be a common sense approach to all business dealings and while I would never condone ignoring the rules in business, there does have to be some leeway in policies and procedures for simple tasks that make life easier for everyone concerned.  I would imagine you’ve heard the term “diminishing return on investment.”  This applies here in particular in that the invoice is such a small amount that continued pursuit of the debt takes time away from other tasks that would significantly impact the business in a more cost-effective way.

Second, accountants tend to take a very black-and-white, right-or-wrong, rules-cannot-be-broken approach to Accounts Receivable Management.  Like it or not, sometimes the debt is just too small to worry about, regardless of the SOX rules and they do allow for small balance write-offs as well as bad debt write-offs that would apply in this particular case.

Finally, the procedure as defined by Mary is extremely cumbersome and time-consuming for multiple levels of the organization.  Let’s assume that it takes one day for each step.  By my calculations, this balance would not be addressed per these procedures for EIGHT BUSINESS DAYS to clear a balance of less than $100, assuming there are no holidays, sick days, vacation days, or pressing business matters that can happen anywhere along that chain of approvals.  Not only that, but does a Regional Sales Manager, Territory Manager, and a Vice President of Sales REALLY need to be involved in a small balance like this?  The final sentence of her e-mail back to me pretty much sums up the problem – “I just don’t like it when we don’t follow procedures that have my name on it!”  An accountant wrote the procedure and it serves no other purpose than to provide approval for a small balance write off.  I think you’ll agree that almost everyone’s time is better spent elsewhere on tasks that actually bring in money to the company.

This e-mail became a teaching point to the Credit Manager and Director of Credit who were frustrated at the lack of progress some of the tasks assigned to Collectors took to complete.  By pointing out the convoluted approval process for small balance write-offs, steps could be taken to shorten that time frame and take some responsibility off of the Collectors and others supposed to be involved in that process to maintain a consistent follow-up to ensure the write off was done.

Sometimes it looks good on paper – but watch out – paper doesn’t accurately reflect real business practices.  Did the procedure get changed?  For their sake, I certainly hope so!

Should VS. Must – Is there a difference?

Everyone has one whether they write it down on scraps of paper, enter it into a calendar on their computers or cell phones, or have another method of keeping track of their days – the dreaded To Do List…

But when you break down that list, do you separate it into Should Dos and Must Dos?  Do you make a distinction between those two?  Maybe we all need to take a good look at on that which we choose to spend our time.  For the sake of argument, let’s imagine for today at least that a Should Do is something that would make life easier if it got done and a Must Do is something that would make life much harder if it did NOT get done.

Every once in a while, we experience a significant event that changes our perspective on life and alters our priorities.  Suddenly, making sure the furniture is dusted twice a week isn’t so important if it means missing that Little League game or music recital.  There are no hard and fast rules governing what is a Should Do and what is a Must Do and items on each of those lists migrate on occasion from one category to the other.   Below is my list of Must Dos for the foreseeable future:

1.  Spend time with my family - Time is precious and is the only “currency” that is renewed every day but cannot be bottled, packaged, stored or otherwise saved for the future.  And in the end, the only ones we can usually count on are family to be there in good times and bad.  Recent events have brought that fact into focus very clearly as well as the knowledge that they cannot be there forever.  There are bumper stickers and posters I’ve seen that claim “No one ever said on his deathbed, ‘I wish I’d spent more time at the office!’”  Sarcastic, yes – but also very true.

2.  Take Time for Myself  – Now, there are definitely times when that can have a selfish connotation – like when it was used on “Wife Swap” once by a spoiled diva who demanded several hours of “ME” time at the expense of her spouse and children, but what is also true is unless I am centered and focused, I can’t be of help to anyone else.  When I get rattled and stressed, I admit it, I take it out on those closest to me and unfortunately, that can be at very inappropriate moments.  If I have taken the time to compose myself and my thoughts, I deal much better with everyday stress as well as those stressful situations that demand extra attention.

3.  Pay it Forward - My family has been lucky enough recently to have been the recipients of a “Pay it Forward” gesture with the caveat that we do likewise when we’re able.  I like to make a practice of doing so and in fact have practiced paying it forward previously so maybe the kind gesture on the part of near-strangers is actually a Pay Back for something done previously.  The bottom line is – don’t break the chain!  I still get a weird thrill out of performing a random act of kindness to the point that I sometimes feel guilty for feeling so good about it. 

Honestly, those Should Dos tend to pile up and when things like “laundry,” “grocery shopping,” or “oil change for the car” become Must Dos, I try to take care of them quickly so I can get back to my REAL Must Dos.  I’d like to know if you have any Must Dos that you’re willing to share – if so, please make your comments here.  I look forward to hearing about them from you.

Pearl of Wisdom #16

Use all your tools – Phone calls are great, but have you tried sending an e-mail, fax, or writing a letter?  Do you provide monthly statements to your customers as reminders of balances due?  Is there another way to encourage payment from your customers?  Have you placed all your eggs in one basket?  Spread them around!  Some customers are not in their offices between 9 to 5 when you’re working so they can’t return calls during “normal business hours.”  Giving your customer options to contact you gives them choices.

A Very Strange Twist of Fate

There are times when fate takes over and you just have to realize that control is not a guarantee in your life.  Something very strange happened in the last two weeks that is simply too coincidental to ignore.  I present the following for your comments…

I was nearing the bitter end of my unemployment benefits and had stepped up my search for full-time employment again.  After all, I’d done it before – worked in the evening on my business while holding a regular job so it would be no big deal.  I received an e-mail from one of the many job boards and lo and behold, a great opportunity!  I attempted to apply for it, but the link wouldn’t work.  Luckily, the company was identified and so I contacted them directly, first through Human Resources but when that didn’t work, I contacted the manager of the department.  He assured me that the position had been filled, but gave me his e-mail address to submit my resume in the event another position opened.  Not TWO DAYS later did I get a call from a recruiter that the very position in that e-mail was now available at least as a temporary placement; however, there was a chance it could turn into something more.  There aren’t many other companies in the Columbus, OH metro area that compare with this organization, so I jumped at the chance.

When I met with that very same Credit Manager last week, we discussed the unusual circumstances surrounding the opening and how strange it was that so soon after I’d made contact with him, I was the very person recommended by a recruiter to fill the vacancy at least for the time being.  Since I’m an unrepentant pack-rat, I went back to that original e-mail and checked the date – it was from several months ago when the person I am replacing at the moment applied for the exact job.  In other words, that posting should NEVER have been sent to me…

Don’t believe in a higher power?  I strongly urge you to reconsider that possibility – I have.

Pearl of Wisdom #15

Follow up is MANDATORY – Telling a customer you will contact them on a certain day or at a certain time and NOT following through on that commitment is a deal-breaker.  Not only does the customer get the impression you’re not on your game, but you could miss a valuable opportunity to verify a promised payment has been sent or a dispute has been resolved.  Your customers are busy people too and if they’re waiting for a call back that never comes can leave a bad taste in their mouths.  Even if you don’t have the exact information they need or want, calling to let them know you’re still working on it removes the impression that you don’t care.

Expanding Your Horizons

The month of July has been especially busy for me…June ended with a successful speaking engagement and July has brought new opportunities for branching out into new directions.  Much of it has come from networking and actually LISTENING to what business owners are saying and what they want to do with their businesses.  I am excited by the prospects of not only doing some consulting, but also training and we may finally have a client interested in Accounts Receivable Management.  I always thought that would be the product that would take off the quickest, but that has not proven to be the case.  It just goes to show you that thinking outside the box (if you’ll excuse the often over-used phrase) has its advantages.

Granted, not everyone is an “expert” but I think we all have an expertise that we can share with each other.  And if you can make a profit doing so, more the better.  In the Information Age, knowledge is a commodity that is becoming more and more in demand and will become the currency of business very soon.  At least I hope so – experience and knowledge are about all I have right now.

I’m excited about the future for the first time in a while.  I’ll try to keep everyone updated on what happens…this could be the start of a whole new book, let alone chapter, in my life.

My First “Speaking Gig”

Well, my road to being an industry “expert” will begin tomorrow with my first presentation in front of a networking group to which I belong.  The topic is Credit, Collections and the Law for Small Businesses and I will be presenting along with an attorney with whom I’ve worked on several matters in the past, Howard Baumwell.

Yes, I am a bit anxious, but who wouldn’t be?  However the reason for the presentation is two-fold:  first, I think many small businesses start out thinking that their product or service is so wonderful and their customers are all honest people so there is no need for a contingency plan in case they don’t pay and second, it could plant some seeds into the minds of those who have met me previously and didn’t think I was all that knowledgeable or good at what I do.  In other words, it will bring me some credibility in their eyes and perhaps they’ll consider using my services in the future.  Or they can refer me to their colleagues or clients as an “expert.”  The only down side is if I really and truly blow it…but let’s not even consider that fact for now.

I hope to have some feedback to share with everyone after the event, so watch the blog for updates.  Who knows?  This could be the start of something pretty cool…

Pearl of Wisdom #14

Professional, polite, but persistent – Make sure every member of your organization acts in a professional manner at all times.  They represent YOU and if they over-step their bounds, deal with it quickly and decisively.  Every customer deserves respect but allowing a customer a “pass” can send the wrong message.  Review notes and contact information on a consistent basis and making a call to a customer you suspect is being treated outside of company policy, either to your benefit or theirs, keeps all communication is above-board.

Reflections on Our First Year

Yes, as amazing as it is to us, it’s been almost a year since Kimberly Scott Credit Services was born.  Although we’re still technically very young, we’ve learned a lot and are maturing quickly.  Eighteen clients have put their trust in us and several more are “in the pipeline” as the vernacular goes and that’s encouraging to say the least.  Here’s a few of the things we’ve learned:

Proof reading is a MUST – We made a critical error about three months ago and we’re still waiting for the final outcome of that situation.  The bottom line is if at all possible, get someone else to read correspondence BEFORE it is sent.  Not only will that ensure you are saying what you mean, it will help make sure all your facts are straight.

Plan for the Unexpected – Playing the “What If” game has its advantages because you never know what may be around the corner – good or bad.  We had a back-up plan for marketing, but when a computer issue arose, we didn’t count on that.  Luckily, it wasn’t serious, but now we make sure we can continue working even if one of our computers is out of commission.

Network, network, network – Nothing gets the word out about a new business like showing up at events and just making your presence known to a few key people.  If you become a “Serial Networker” you’ll undoubtedly find several kindred spirits showing up at multiple events.  When they see you frequently, they know you’re serious about your business and begin to like, know and trust you to be there when it counts.  And rather than spreading yourself too thin, the consensus among our business associates was to pick a few events to attend on a regular basis for the best results.

Being your own Boss has advantages but… – It takes a lot of self-discipline to work from home and bringing home the occasional project from a regular 9-5 job doesn’t count.  The daily grind of working on your own is both freeing and daunting.  Since there doesn’t seem to be anyone to answer to, you feel justified in taking off several afternoons, or mornings, or days as you see fit.  The trap there is you answer to your customers and they are more important (and sometimes more demanding) than any boss.  Self-imposed deadlines are just that – self-imposed.  Treat them the way you would any deadline for a client or boss and you’ll find you can be reliable all on your own.

Find your niche, but don’t be afraid to expand as necessary – One of the most amazing things we’ve found over the past year is our original idea is sound, but sometimes suggestions or requests are made that significantly extend your vision of what your company can be.  We knew we wanted to set ourselves apart from the pack by offering superior service while repairing relationships which was something no one else seems to be willing to tackle.  From that, we decided to package services together and while some of them are related to Credit and Collections, they weren’t necessarily what we set out to do at the beginning.  Not only do they add value for our customers, they offer additional revenue streams we didn’t realize were there in the first place.

Love what you do; it makes ALL the difference – Not many can say they “love” asking people for money, but our joy comes from solving a nagging problem and facilitating a reconciliation - business ”marriage counselors” of sorts.  The connections we’ve made with other businesses have yielded some unexpected dividends – like assisting several clients that previously owed money to OTHER clients put that behind them and become clients themselves.  To us, that is the ultimate compliment.  Whether those “clients” reconnect is up to them; we smoothed the road which is all we can do.

If you have any comments or want to check out our Testimonials page to see what some of our clients are saying, please feel free – the link to our website is under Contact Us.  We’d also like to hear about what you learned in your first year in business…that could be a book in itself!