How can I have no money when I am making so much money?

Growing out of business.

We had a client that was busy selling services to other businesses. Still, in spite of having lots of orders, he was chronically short of cash. 

He was so far behind on his bills that they called us, thinking we were the last resort as it was just a matter of time before they went out of business. 

 Looking at the file, we quickly realized that he probably did not need us, or if he used us, it would only be for a short period of time. It turns out that he had all of the cash he needed, but for several reasons, his cash was still in the hands of his customers rather than in his bank account. 

 This business owner was submitting their invoices once a month. Their customer had typical payment terms, net 30 days after submitting invoices, though, in the real world, net 30-day terms mean that you will be waiting 41 - 45 days for payment. 

 Worse yet, in most cases, the 30-day clock does not start until the invoice is APPROVED in the customer's system. Putting this a different way, if you invoice monthly, you are not likely to receive payment for the product or service you provided on day 1 for 70 - 75 days. 

Here is what we did.

1.        We took care of the old invoicing. 

When we started sorting out the Client's invoicing, it turned out that the Client was actually significantly behind on their invoicing. More often than not, invoices were submitted some 90 days after the work was finished! 

 Additionally, doing the invoicing once a month turned billing into a monstrous task. There were mounds of paper that took hours to sort out, and by which time details were difficult to remember when a question came up. Their stacks of documents then needed to be matched to POs and the customer's proof of receipt (field ticket, scale ticket, proof of delivery, etc.) Details matter; your invoice will be paid late if there's a flaw in your invoicing, missing information, incorrect calculations, or an unsigned proof of delivery. By the way, accounts payable hates chasing documents (that should have been included) and correcting other people's mistakes. Invoicing properly is your responsibility.

2. Make the invoices easy to pay!

 When handling our Client's AR, we analyzed every invoice, not just for accuracy but for clarity, as well. We want to ensure that AR quickly and easily finds the information they need on our Client's invoices. If something needs to be corrected or added, we wait to submit the invoice until it gets sorted out. 

 We have made the job of the good folks in accounts payable easier for over 20 years. We have often heard that AP prefers to process our Client's invoices first because the files are always complete, accurate, and ready to enter their system.

     3. Daily invoicing

 We asked if their customer would accept more frequent invoicing. It turned out that their customer was happy to take daily invoicing, and this was a huge win for the Client!

 Daily invoicing makes the task much smaller and less prone to errors because everything is still fresh in your mind. Invoicing for extra work or other add on's, does not get forgotten, and if you need a signature, you can get it signed or stamped the next day.

 Many customers will allow more frequent invoicing, and every week or every other week is typical.

 We also entered the remainder of our Client's invoices into their customer's invoicing portal, which, when they are available, makes a habit of daily invoicing even easier.

4. Follow-up

Next, we called or emailed the AR department to make sure they had received everything that they needed to pay our Client's invoices, and we regularly checked the status of our Client's invoices in their customer's invoicing portal.

The results were immediate and resulted in several unexpected benefits.

 Then is the next cheque run?

The next win for the Client was that one of their customers ran cheques (made payments) at the end of every week, so in a short amount of time, cash started coming in regularly.

 Once they started invoicing daily, they started receiving payments every week. Regular receipts made cash management much easier and immediately improved the bottom line. 

Cash started falling directly to the bottom line! 

Can I get a better deal if I pay my account off today?

 We had the Client go back to the suppliers that he owed money to and asked them if they would give a slight discount if the account was paid in full within 24 hours. Some suppliers gave a discount, and some were non-negotiable. We have noticed that the larger the amount owed, the more likely the supplier will give a discount. The discount falls directly to the bottom line! 

Can I get a better price if I buy more or pay up front?

 Once the Client was able to catch up on their suppliers' accounts, we had them go back and ask for a discount on their supplies if they were able to pay the supplier faster. We had them ask the supplier if there was a discount for paying COD. We also had them ask if they could get discounts for purchasing larger volumes. 

 Not all suppliers will negotiate, or discount, but supplier terms are very important and have a massive effect on the bottom line. 

So how did it go for the Client?

 This Client became a long-term account and a very happy business owner. We are still handling their invoicing and managing their Accounts Receivable. We took so much unproductive work off his desk that he was able to concentrate on his customers, find new customers, and do his job. This Client's business has continued to grow, and he sees us as an essential part of his business.