Big corporations are typically much better at managing their finances than are small businesses. They have expert accountants, CPAs on staff and they hire talented audit firms. Here are 7 "tricks" small businesses can use to upgrade the management of their financial system and get the results of a big company.
1. Set longer A/P payment terms. In the Great Recession, many large corporations unilaterally extended their payments to their vendors. They extended the days by which they would pay their bills to 60 or 90 days. While it is important to pay vendors within the agreed-to terms, try to negotiate longer payment terms up front before the purchase. “Thirty day terms” are no longer the universal standard. Alternately, if cash flow is an issue for the company, send a note to vendors extending payment terms unilaterally by 15 days and then pay within terms. Most companies will accept it.
2. Get paid upfront. Many large companies no longer give credit to any of their customers. Credit is a privilege, not a right and these days it is seen as too high a risk for most everyone. Every company needs to take credit cards so customers have no excuses for not paying up front. Also, accept electronic transfer of funds or electronic checks as alternate payment methods.
3. Was the A/R invoice received? Most customers want to pay their bills on time, but the bills get lost or not entered into their accounting system for payment. Many large companies follow up with a call or e-mail to ensure their invoice was received and to find out when it is scheduled to be paid. If payment is not received on the promised date, they follow up with a reminder call. This takes tracking discipline, but it does yield improved cash flow and lower overall A/R.
4. Use credit cards to pay bills after 30 days. Large companies use corporate credit cards to pay an invoice when it is due (30 to 90 days from purchase). This gives them another 30 days of cash flow. This works only if the small business pays the balance of that credit card every month and does not use it as a permanent loan.
5. Bill on time. Many large companies bill daily and do not wait until the end of the month. The biggest mistake that most small-business owners make is that they do not bill at least monthly. This severely limits the company’s cash flow and ability to fund expansion.
6. Move to a different state. Many corporations move their business where the tax burdens (income, sales and property taxes) are the lowest. These states include Alaska, Hawaii and Maine. The worst states for taxes are Tennessee, Arizona and Louisiana.
7. Careful accounting tricks. There are many techniques that large corporations use to "manipulate" sales or profits. Here are a few that can be used with the help of excellent accounting advice:
No provisions for bad debts even though the debts are old and the customers are out of business.
Recognizing the income of a long-term contract when it is signed rather than when the income will actually be realized.
Selling fixed assets (property, machines, computers) and recognizing the income as normal sales.
Changing the depreciation policy.
- Treating some operating costs as investments.