Five Ways to Improve Cash Flow
1.Always Ask for a Retainer
If you don't ask for a retainer you are leaving cash flow on the table. Even if most of your clients won't agree to a retainer, it is still possible to generatea decent amount of positive cash flow. Let us assume that we book $10,000,000 of new business during the calendar year and we have a policy of always asking for a 10% retainer. Let us further assume that 70% of the time the client will not agree to pay a retainer. That would leave us with a 30% success rate and an improved cash flow of $300,000. Make it a policy to always ask for a retainer -- the worst that could happen is that they say no.
2. Streamline Your Invoicing Process
Analyze every step of your invoicing process to eliminate redundancy and maximize efficiency. Make prompt accurate invoicing your top priority. All Invoices should be out the door not later than 5 business days after month end. Prompt invoicing sends the message that the money is important. Invoices sent 30 days after the fact sends the message that the money is not important.
3. Send Electronic Invoices
Make it a company resolution to send all of your invoices via e-mail as a PDF attachment starting January 1st 2010. Electronic invoices get there faster and you can request a return receipt that acknowledges the client has received the invoice. This minimizes the likelihood of them "losing" the invoice or "having no record of receiving that invoice".
4. Develop a Systematic Way to Follow-up for Payment
Sending out an invoice and hoping for the best is not a plan -- it is wishful thinking. Develop a procedure that will confirm the client has received the invoice; approved the invoice; passed it on to accounting for payment. Once the invoice is over 30 days a friendly call needs to made for collection.
5. Integrate a Collections Component in to Your Incentive Compensation Plan
Collections absolutely must be a component of your incentive compensation plan. Make it a policy that incentive payments will be calculated on the basis of collected revenues only. This will certainly get the partners and project managers' attention and dramatically increase your cash flow.