You Can't Cash an Invoice

In the April 28, 2009 L.A. Times question and answer column In Box, writer Karen E. Klein replied to a question on improving a company’s lagging cash flow with the following: “Business owners often fall prey to the erroneous thought that the more they sell, the more money they’ll make. Remember than an invoice is not cash.” Amen, Karen Klein. What amazes me is that this statement is so true. Companies do not see a correlation between sales and revenue. It is like thinking you are rich because you have a lot of checks in the checkbook. In order for a sale to be worth anything, it must be paid for. I know a Memphis based company that had at one time over two million dollars in unpaid Cash On Delivery sales. These guys thought the sale was more important than the payment they did not bother getting the payment on delivery.

Companies prove they are ambivalent about cash when they spend enormous resources on sales and marketing and nearly nothing on collections and effective credit management. Indeed, a company must increase sales if only a fraction of them are paid for. Yet, why not collect a larger share? It seems a more practical approach than chasing a declining market. With just a little more effort and training a company with lackluster collections could improve cash flow considerably. Often, waiting two months rather than three months to call on past due accounts can make a major difference.

One company I know, a distributor of cheap household goods, chose to dramatically increase their sales by extending credit to just about anyone who applied, regardless of their history or capital. The idea was to then use the accounts receivable as collateral and borrow against it. That was the solution to a lagging cash flow. However, as the collections fell off, so did the available line of credit and the company had a very difficult time paying down what they had already borrowed. Let’s face it, there is no substitute for good old cash on the barrel head.

The owner of a lumber company once said to me, “We are going to be the best in price, the best in service but we are going to be bastards about paying.” Above his group of inside sales reps hung a sign that read, “A Sale is Not a Sale Until it is Paid For.” Collections for this company were consistently in excess of 80%. Further more the company’s sales philosophy was one of the most aggressive that I’d ever seen. What they had was both aggressive sales and collections.

It is not rocket science, but credit remains one of the most over looked under utilized functions of a company. This is where Strategic Credit Management Solutions can help increase your revenue. We know how to collect; we’ve been doing it for over thirty years. You don’t need another collection agency to do it for you, just let us train the group you currently have. I assure you, it’ll make a positive difference. See our website at http://powerscredit.com/ and contact us at patrickpowers@sbcglobal.net.

Your comments are welcome.