3 Tips For Managing Cash Flow

If you aren’t an accountant – and, okay, even if you are – managing cash flow can be a daunting task.  Cash flow management, essentially keeping your money as long as possible and being able to project how much of it is headed for your pockets at any given time, serves a few purposes.  It’s a great forecasting tool and a fine way to keep your business healthy, and, scary as it might seem, it’s important to get a feel for it.  Let’s just dive right in, shall we?  I promise it’ll be fun, and, we won’t go too far into the deep end J

#1: Project it Correctly

Projecting how much money you’ll have at any given time (or, for starters, just one specific time in the future) is important because it allows you to make other big decisions and, as the name would suggest, plan or project for the future.  Were you thinking of upgrading a piece of machinery in your warehouse?  Maybe thinking of changing vendors for a specific product?  Perhaps you’re even considering giving your employees raises.  Relying on numbers your accountant prepares for you is perfect, but, if you’re your own accountant, you’ll have to learn to project cash flow yourself.  You’ll have to make educated guesses about a number of things, including your customers’ payment histories and upcoming expenses.

Here’s what you can do in two detailed steps:

1. You’ll have to add up all of your cash on hand, plus the cash you expect to get from various other sources later on.  You’ll need to talk to all of your Sales team, Service or Support members, and of course your Credit or Finance department.  You’ll be asking the same question of all of them: How much cash (in its various forms, payments, interest, fees, etc.) are we going to get, and when are we going to get it?
2. You’ll then need to assess when your cash is going to be spent, and on what.  The more line item detail you have, the better – and, that includes items rent, utilities, inventory, salaries and wages, benefits, standard office supplies, advertising… Everything you spend money on for your business, really.

If you can be very thorough in your research (or just very honest with yourself in how your business spends its money), this is all you’ll need to do.  It’s a difficult undertaking, to be sure, but, if you can prepare one of these cash flow projections per quarter (or, more or less frequently, depending on your preference or your financial state), you’ll know exactly how much room you have to make other adjustments, like the aforementioned big purchases, raises, or anything else you might want to do.

#2: Improve Your Receivables

If you got paid for things the minute you sent out invoices, you’d never have any cash flow problems.  That’s usually not how it works, unfortunately.  Bearing that in mind, there are certain things you can do to ensure you get your money a little more quickly, if not instantly; you can start by making tweaks at the inventory level and making other adjustments at the customer level.  For example:

1. If you have old inventory, don’t just keep it around – sell it for whatever you can get.
2. Invoice customers as soon as possible, and follow up promptly if you sense any sluggishness.
3. Automate payments whenever possible,  Whether this means putting customers on a recurring payment subscription plan or simply using integrated credit card processing that plugs into your accounting system, this will get you your money more quickly.  In the case of using integrated payment processing, or even a virtual gateway, you'll save time every day too, which can translate to monetary savings in increased productivity.
4. Ask that customers make deposits on orders as soon as they’re taken; identify customers that have a history of paying you slowly and institute a COD (collect on delivery) policy.  If you’re not sure how to do that, an outside service like UPS can help.  If this doesn’t help, you can simply refuse doing business with those customers until you can be certain they’ll pay you on time.
5. Incentivize on-time or early payments by offering a small discount.

For a closer look at improving receivables cash flow, this piece on avoiding late payments from customers touches on similar ground and provides some additional tips too.

#2a: Improve Your Payables

If your sales are good, you might think everything in your business is hunky-dory – unfortunately, that isn’t usually how it works either.  Great sales can hide problems originating in your expenses, so it does good to pay close attention to how much money is leaving your pockets and when.  Here are some things you can do to lessen the strain and keep money in your pocket longer:

1. Take advantage of payment terms to the fullest extent.  That means if a creditor or vendor demands a payment in 15 days, don’t make it in 10.
2. If vendors offer you discounts for early payments, consider whether or not a discount will help you before jumping on their offers.  If you need to hold onto your money, you may want to let it ride until the payment becomes absolutely necessary.
3. Rather than send payments via post, use electronic transfers to make payments on things the day they’re due.
4. Don’t choose vendors simply on the basis of price.  Vendors with payment terms that serve you in your financial situation may be better for business overall than vendors with rock-bottom prices that need their payments now.

Let your vendors know about your cash flow situation if necessary.  If you ever need to put off making a payment, at the very least the vendors will have advance warning, and they may even be sympathetic.

#3: Survive Real Deficits

While tip #2a is designed to help prevent cash shortages, sometimes it just isn’t enough and you end up in the red anyway.  This doesn’t mean you’re a bad person or you’ve failed as a businessperson – it just means you couldn’t accurately predict the future, and, until we humans develop some form of ESP, you’re off the hook for that one.  Not being able to pay a bill is a completely normal situation, and, there are some measures you can take to lessen the stress from a bad cash flow situation like this, too:

1. Preventative loans help a great deal, but, banks will be much more apt to lend you money if you ask for it in advance – the longer time you give yourself, the better.  If you come to a bank asking for money you need that day, you’ll likely be rejected.  (You can approach third-party loan companies for next-day loans, but you’ll incur astronomical interest rates, so I would advise against this unless absolutely necessary.)
2. Your bank will come in handy for more than just loans.  You can arrange for your bank to give you a line of credit, which allows you to borrow money (like a credit card) up to a certain limit.  I would take the time to open a line of credit even if you don’t anticipate being in the red – it’s just a good business practice, akin to carrying a personal credit card in case of an emergency.
3. Ask your suppliers for help if you can’t get it from the bank, as those vendors probably know you and your business better than your bank does, anyway.  You can probably get what’s essentially a low-cost loan from vendors just by asking for it, especially if you’ve already informed them of your situation and have been a good customer in the past.
4. Using factoring may help.  Factoring is when you hire an outside service to collect payments on unpaid invoices for you.  The factoring company is compensated by taking a percentage of your invoices, but, you’ll be paid immediately for any invoices the factoring company takes over, so this is a good way to put some money back into your pockets immediately, if only as a last resort.
5. You can also ask your most promptly-paying customers to pay you more quickly, taking care to explain your situation and incentivizing them by giving them a slight, one-time discount, too.  You can also go after your very late-paying customers, offering them discounts for paying quickly as well – if you can get them on the phone.
6. In extreme situations, you can sell your machinery or offer your office furniture or similar assets as collateral on a loan.  In these situations, be sure to make your payments on time or you could risk permanently losing the items you handed over.

Concluding Thoughts on Managing Cash Flow

Okay, so I lied a little in the beginning.  Cash flow management isn't such a fun topic unless you're thoroughly in the black - and, even then, you need to continue to perform cash flow projections to ensure you remain there.  As long as you follow the steps here, you should be at least armed with some good information that will help you in the future.

3 Innovative Ways to Reduce Credit Card Processing Fees

How do you reduce your credit card processing fees?

It’s the age-old question.  How do you pay the lowest rate possible?  Can you get away with processing for free?  What’s the deal with interchange levels?  And, what the heck is a discount rate?

Suffice it to say credit card processing is a strange, multi-faceted beast.  There are lots of moving parts, and things going on that even your processing statement, which is confusing enough in itself, doesn’t detail for you.

Talking about it all would take me the length of a tome, and nobody wants that, so I’m just going to cover what you pay today.  Even what you pay has a few different levels to it – it’s not just a single rate that you sometimes hear about in advertisements on the web.  Without further ado, let’s move to the first item to look at to reduce what you pay out.

Wait too long, pay the price

Good things don’t necessarily come to those who wait – it’s best to strike while the iron’s hot, in my opinion.  While this is an adage I live by, it can very well be applied to credit card processing too.  If you’ve authorized a charge on a credit card and wait more than 48 hours to charge that credit card, you’ll be charged a “standard” processing rate – and, that can be as high as 2.95%, a fair bit higher than what you’ll usually pay.  (And, we’re just talking about the set interchange cost, not the processor’s markup!)

In order to alleviate those sorts of charges, simply make sure you’re settling authorized charges at the appropriate times, taking care not to wait too long.  If you use a virtual gateway, you can usually set it to automatically batch out at certain times (or trigger batching out for certain transactions, like pre-auths).  If it seems feasible for your business, it might make sense to nix pre-authorizations altogether and simply charge credit cards at the invoice level.  In any case, strike while the iron’s hot and you’ll come out on top in this case.

Save some money by saving time

Lots of businesses, especially B2B wholesale companies, are extremely advanced in almost every sense, except when it comes to payment processing; they’ll use systems that are quite disconnected, take too much time to use properly, and, for all their inefficiency end up costing businesses more.  This is due in part to the processing industry, what with most payment processors’ tendencies to rope businesses into contracts, lie, be ambiguous in their language, and other nasty habits – most business owners are apprehensive about doing anything differently when they’ve found a processor that’s at least somewhat fair.  It’s not uncommon to see a manufacturing company use the most high-tech equipment to fabricate their products, yet use a standalone terminal (technology that dates to the 1970s) for credit cards in conjunction with their top-notch accounting programs!  It’s unfortunate.

So, is it really possible to get two good things in one package pertaining to payment processing?  Actually, yes.  Using a credit card processing plugin for your accounting system of choice can effectively reduce your processing fees automatically while making your workload a lot lighter.  Plugins like this work with programs from QuickBooks (as an alternative to Intuit merchant services) all the way to Sage 500 (as an alternative to Sage Payment Solutions).  Here’s what happens:

1. Rather than using a credit card terminal, you input your customers’ credit card data directly into your accounting system, which you would have had to do at the end of the day anyway.
2. The plugin automatically transmits extra information like a PO number, invoice number, ZIP code, freight amount, and other information you enter anyway to the credit card-issuing banks.
3. The banks see this extra information and qualify the transactions at higher security levels, since the extra information makes those transactions harder to duplicate or make fraudulent.
4. The higher security gives you a lower interchange cost (set cost) for the credit cards entered that way – especially for business-type cards and GSA cards.

And, that doesn’t even touch on the time savings.  But, imagine how much time you might save not having to run all around your office to complete one credit card order, then stay a half hour (or a whole hour) after work re-entering credit card data to mark your invoices as paid.  And balance your GL.  It’s a lot of work you don’t really have to do!

Birds of a feather flock together

Ever had the feeling you just didn’t belong?  It happens most often in social situations, I’m sure, but your processor can pull a fast one on you and take you on a bad spending trip – all because you operate in a “high risk” industry, or some other industry they don’t particularly like.  Of course, in an effort to earn your business, they may not always tell you this, but they’ll sure make you pay anyway.  So, what do you do when you’re being silently shunned?

First, take a good look at your processing statement and determine if your overall costs seem fair (and, they will vary considerably depending on the type of business you’re in).  If they don’t, you might consider seeking out a processor that caters to your exact business.  Often, credit card processors will cater to specific industries, like adult novelty shops or firearms dealers, by establishing relationships with other entities (offshore or local banks) that will allow them to process transactions that other processing networks might label high-risk.  Prices will be lower with a high-risk-specific processor, for example, than with a run-of-the-mill company because they don’t have to worry about their backing network kicking merchants away, and for that reason the processor doesn’t have to worry about recouping all sorts of administrative costs by charging you.  Everyone wins.

Yours,

Jeremy

PS - I'm sorry; you still can't get away with processing for free.  When I figure that one out, you'll be the first to know, though ;)