Cash Flow Tip - Improve Your Credit Terms?

‘Time is money’.

Nothing could be more true when it comes to managing your cash flow and business liquidity. If you struggle month to month to meet supplier, rent and utilities payments because you are constantly struggling against the lengthy payment terms of you customers, you need to re-think your cash management strategy.

Think about it:

  1. If you must pay your bills and debts in 30 days, but your customers have 60 day payment terms, you have a problem, possibly a big one.
  2. If however you must pay your bills and debts in 30 days, but your customers pay in 10 days, you are in a very good position.

So how can you take control back of your cash flow and gain the advantage? Try this deceptively simple tip. Offer a small discount for payment within 10 days (2% for example). Yes I can hear you thinking ‘but that reduces my revenue and margin’. True – but what is the cost to you to wait an additional 20 or 50 days for that payment to come in if you need to pay your own debts?

Most businesses (or individuals if you sell with payment terms) will jump at the chance to save 2% on their bills, and you get their cash in the bank well ahead of the due dates for your own business debts.

I hope this simple tactic gets you good results and minimizes the time you need to spend each month chase down payments. If you have any other credit term advice for business owners feel free to post it below.

Disclaimer: This advice is general and your specific situation is not taken into account. Consult a professional for direct advice.

Published On: March 16th, 2010 / Categories: Success Tips /

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