Cash is King. It allows your company to pay its suppliers, gain credit terms, and pay for reinvestment to offer new services.
Credit is only a good word when given by another company to your company.
Credit to customers is bad.
If a customer becomes a bad debtor it acts on many fronts to cost the company more money to provide the original service. When we have a debit, we have to in any case pay for the supplies used to provide the service. We have to pay our staff wages, and worst of all we pay bank credit charges, and finally wasted time chasing bad debts.
Ways to reduce customer credit.
Your company needs to offer an incentive to pay for the product up front. Examples of this are; paper photo finishing, or Dell computers.
Credit or Debtor days
Dell on average gets paid 14 days before they ship a product. They also have 30 days credit with their supplier. This means before paying the supplier they have the money in their bank for 44 days.
Maybe your company can’t reduce its debtor days!
Maybe you can’t currently can’t request payment up front. Or at least it is uncommon and difficult to set up an invoice before the material has been processed.
This is because you haven’t set up an invoicing pipeline to accept a new customers orders and payments at the same time
Solutions. What do you all think?
Sales spreadsheet capturing all the data up front?
Build a simple web payment system?
Build discounts by putting prices up for upfront cash payment?
Stop credit to new companies?
Don’t automatically provide credit?
Actively start chasing debts
If you can work as a team and concentrate our minds on this, you can get to the stage where in another 90 days you have less than 30 days of debtors days.!