Improving Cash Flow with better Collections

A client once told me that the best part of owning her business was when she prepared and sent the monthly invoices. I’d take it one step further and say it’s when you actually receive the money. There’s a considerable difference between the two. Enough in fact to kill “profitable” businesses, because they couldn’t or didn’t’ collect money fast enough. Next to crushing debt, this is arguably the second biggest reason so many small businesses have shut down in the past 2-3 years.

Understand what your average days outstanding are, for your accounts receivable. This is expressed in number of days. For example, electrical contractors are typically at 55 days, child care centers collect in 4-5 days, and commercial printers in 44 days. Then set a goal to become better than your industry benchmark, better than you were last year, better than last month.

There are very specific methods to improve your collections. The most overlooked strategy is by simply assessing a finance charge on overdue balances. I can’t tell you how many clients have tried this, only to see money start flowing in.