Professional Documents
Culture Documents
How To Get Paid, On Time and Every Time: Robert Ashton
How To Get Paid, On Time and Every Time: Robert Ashton
andEvery Time
Robert Ashton
Chase overdue invoices, because whatever late. They too will do their best to distract
you do, some people will always pay late! you from this because, of course, they are
looking after their own cash flow.
Why Is Cash Flow so Important? Lets look at some very simple examples
Lets develop the idea that your companys to illustrate my point.
cash flow is its life blood. How can this anal- Lets say you are in business selling
ogy remind us of those business basics we framed prints of landmark buildings in
may be in danger of overlooking? New York. You sell to both shops that stock
Think of your company as a living, breath- your prints and those that sell them on,
ing person. It has to eat to live, and the food and also direct to the consumer online. You
that companies eat is called sales. Just as an have a retail sales price of $50 per framed
empty stomach rumbles and feels uncomfort- print and offer your stockists a $20 trade
able, so too does a business with an empty discount.
order book rumble with discontentment. No Each print costs you $20 to produce and
sales means no a ctivity. It means twiddling frame, and $5 to ship just one, or $2 each
thumbs and perhaps m achinery standing idle. if you ship a bulk order. So your business
Of course, there are some benefits to business looks like this:
hunger. Just as a starving man rarely visits the
toilet, so too does the hungry business find Stockist sales Online sales
it has no by-products to dispose of. Energy Customer pays $30 $50
consumption falls too, but as you can imag-
Delivery costs $2 $5
ine, a company without sales inevitably dies.
Now what keeps the company running is Production cost $20 $20
money. It funds the payroll, so everyone gets Margin $8 $25
paid for their work. It pays the bills that keep
the company running, buys raw materials, At first glance, online sales are far more
fuel for delivery trucks, and everything else lucrative, but because your stockists are situ-
you can think of. ated within sight of the buildings featured in
If costs are not controlled properly, the busi- the prints, they sell far more prints to tourists
ness can hemorrhage cash in just the same than you can sell online. Your production
way you or I will bleed if we gash our leg. costs are only $20 per print because you can
Our instinct is to stem the flow and help the make thousands at a time.
wound to heal. With companies, ahemorrhage Your online sales are cash positive because
can be harder to spot, but just as dangerous. the customer pays online when they place
Familiarity can lead us not to notice inef- an order. Because you ask them to allow
ficiencies as they grow. Think of this as an 14days for delivery, this actually means
ulcer in your gut, leaking blood, but not in you can, if pushed, use their money to pay
away you can notice. You just start to feel bad the costs associated with the print they are
and wonder why. So its important to keep buying. This is called positive cash flow,
a close eye on your costs and watch out for because money comes in before it has to go
those that gradually increase unexpectedly. out again to cover your costs.
Remember that if someone feels their Your stockists, however, are supposed to pay
job is at risk if their part in your production you 30 days after delivery, but often take far
process becomes too costly, they may do longer. They too like to sell the prints before
their best to conceal growing inefficiencies. they have to pay for them. This is easier in
People will go to extraordinary lengths to summer time when there are more visitors
protect their jobs if they feel under threat. to the city than in winter.
The other big problem that can damage This is what your cash flow looks like
your cash flow is when customers pay you when everyone pays on time.
As you can see, if your customers pay as you take a look at your cash flow and see
expected, your original $5,000 investment the impact of this generous approach.
is back in the bank after five months, and Now they are paying after 60 days, rather
from then on, you generate profit. than 30. The cash flow then becomes very
But your stockists keep ordering, and different:
so you allow them some leeway. Then
That one months slippage has given you That is how 95% of entrepreneurs learn
some real problems. You only survive in the importance of managing cash flow!
June because you pay your own suppliers
late, after youve had the $3,000 from your Ratios To Watch
customers. Luckily, you can pay your staff as If youve studied bookkeeping, youll know
normal, so you have the very real situation all about ratios. But if not, you may have sat
of yo ur employees knowing theyll be paid through a finance for nonfinancial manag-
and you worried about survival. ers course. The inevitable lapse into jargon
by the presenter and your unwillingness to
risk looking stupid will mean you kept your
Top tip: When youre new to doing busi- head down, avoided eye contact, and hoped
ness, you may be surprised to learn that
it would soon end.
the faster your sales grow, the less money
To give yourself the incentive to get tough
you seem to have in the bank. The simple
about payment terms, there are just a couple
example above illustrates why this hap-
of ratios you can easily work out, even if you
pens. Remember that more companies
go bust during periods of rapid growth find finance difficult.
than during a downturn. Youve probably heard of debtor days.
Its one of those phrases youll hear, and its