If you saw a hundred dollar bill lying in the street, you'd bend down and take it, right? If you heard that twenty bucks were missing from your petty cash box, you'd go nuts, right? If you were able to get something online for a few dollars less than in a store, you'd wait the few extra days, right? Of course you would. We all would. And yet, in your own business you might be throwing away money—probably more money than if you did any of the above. Want to try to change that? Best to start with these three actions.
1. Pay your suppliers early, and take a discount.
Think you're helping your cash flow not paying your vendors quickly and stretching your payments as far as possible? Actually, you’re likely hurting yourself. That's because interest rates are so low that keeping your money in a bank account might be costing you, not earning for you. If a vendor offers a 1 percent net 10 discount on a $1,000 invoice, then take it! That's $10.
Do that ten times in the next few months and there's your $100 you would've pocketed if you had found it in the street. Leaving that money in the bank at .00001 percent annual interest (or whatever your bank is charging) will return less. Besides, your vendors will love you when you pay early, just like you love your customers who pay you early. And who knows when you'll need a favor in the future?
2. Get your invoices out… now.
I know, you're busy. We're all busy. And doing “the paperwork" is a pain. But you're throwing away money by delaying this task. Let's face it, some of your customers aren't exactly paying you so quickly nowadays. Why give them a few days or even a week or two of extra time to delay their payment because you're behind in getting your invoices out? The money that you could have in the bank, weeks earlier, is money you wouldn't need to borrow with interest for your working capital purposes.
Have a process for getting your invoices out every day. Send them online or by email if possible, because it's faster than through regular mail. Taking payment by credit card can also help you get paid faster. Even though there's a transaction fee, the cash you'll spend while waiting and collecting from them will cost you more. For the rest, set the collection clock going so that you're following up on every open invoice until your cash is in the bank. One of the best ways to follow up is to have a simple customer relationship management (CRM) or contact management program. This way you can track your calls, what was said and what was promised, and you'll always have your tasks and reminders scheduled.
3. Get audited.
The word audit conjures up images of accountants and IRS agents poring through every transaction in your business and asking you why you spent so much money on meals—but there are other kinds of audits. Good kinds. These are the kinds that you initiate. And the smart business owners I know initiate their own audits. They call in independent IT firms to audit their networks, security and IT infrastructure to make sure that no money will be lost on down systems, bugs, slow performance or potential hacks. They ask their insurance agents to walk around and make recommendations for better safety, storage and risk management practices (and they make them pay for a round of golf when they're through). They hire firms that specialize in scrutinizing electric and cable bills and who uncover and then negotiate mistakes with the service provider, usually taking a percentage of the savings. Some clients of mine ask their accountants to perform financial reviews annually or bi-annually, if only to get their feedback and suggestions for doing things better. These are all experts who are eager to show you where you're throwing money away, and hopefully get your business in the process.
Do all three of the above and, over the next few years, watch what happens to your cash flow. You'll become more confident that you're not throwing your money away. And for most business owners like me, that's a very good feeling.