So now that you know the basic principles of good cashflow management and have a good handle of how much money you have to play with at any point in time, it’s time to look at Principle #2: Get the money into your hands (or the bank) as quickly as possible. Now, having said that, some of what I’m about to tell you is going to depend on what type of business you have and what others are doing in your industry. Not that you have to copy what your competitors are doing, but you may not want to stray too far from what is acceptable. Anyway, here’s the gist on how it’s done:

1. Payment upon Purchase. This is the ultimate get cash in your pocket method. If your client wants that widget now, but doesn’t have the money… Hellloooh! That’s what credit cards are for! Avoid sales on credit and layaways if at all possible. And, please, cash those cheques immediately!
2. For services rendered. If your business provides a service which involves time, people and/or materials, then your payment policy should look something like this:
   1. 10% non-refundable deposit upon acceptance of the quote.
   2. 40% due at some crucial point in time. Generally the beginning.  
   3. Balance is due upon completion.   In some industries, the customer is permitted by law to withhold 10% for 30 days.   That doesn’t mean you can’t ask for the other 40% when you are done.    
3. The unavoidable Accounts Receivable.   Have no alternative but to go with the flow? Then set a clear and firm credit and collections policy. Here’s a good example:
   1. New customers. First time buyers pay upon purchase, period. I don’t care WHO they are. Credit is extended only after a thorough credit check.
   2. Credit Card Payments. Acceptable as payment upon purchase, but should never be permitted on old balances owed by the customer. I don’t want to get into the whole time-value of money thing here, but surely the costs involved must be obvious.
   3. Offer incentives to good or large clients to pay early. A clear win-win situation. The terms vary amongst the industries, but commonly it is: pay within 10 days of the invoice date and get 2% off (Net 2%/10)
   4. Charge interest.   Late payers pay interest on overdue amounts.   Typically it is 2% per month, starting 31 days after the invoice date. But 5% is increasingly becoming the norm.   Most accounting softwares make this calculation for you.
   5. Procedures, procedures.   Invoice frequently, not just at the end of the month. Issue monthly statements by the 5th of the month. Track your customer payments, call delinquent payers and freeze accounts that haven’t paid in too long or consider sending them to the collections agent.  

As a final word of advice… if anything I’ve said so far is not what you are currently doing, then be sure to give your customers lots of warning and time to adjust to your new collection policies. Yes, some people will balk, but those were probably the customers you were having trouble getting money from in the first place.

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Ms. Andrée Cusson is a Certified Management Accountant (CMA), a Sage 50 Accounting Partner and Intuitive Consultant.   She provides controllership services; management consulting; strategic alignment; tax planning; Sage 50 (formerly Simply Accounting) turnkey set up; and “work smarter, not harder” strategies and advice.   Her passion for the past 15 years has been to assist entrepreneurs and individuals with fulfilling their financial goals and dreams.   Her practice is based in Oakville, Ontario, Canada.