Why immediate action needs to be taken In business, cash-flow is king. A great product or good business idea is useless if cash-flow is not under control. It is as essential to your business survival as water is to your own survival.
We all know that without water we die. But without a regular supply of water we can’t function properly. Brain function deteriorates, energy levels dip, you become more prone to viruses and disease, and overall you become very sluggish.
It’s the same in business Without cash, your business becomes sluggish. Instead of thinking about how to grow your business, you are worried about paying the bills. You are distracted. You can’t think properly. Your business suffers. These are the indirect costs but there is also a direct cost to your business.
How poor cash-flow costs you financially The direct costs occur in two ways. First, if money is going out but not coming in, either you are paying interest or you are losing interest. Secondly, you have no money to reinvest in your business: so your business is stagnant. You can’t make any money without borrowing further, which is an additional cost. That’s why as soon as you have a negative cash-flow you need to take immediate steps to reverse the flow. Faced with that situation, most business owners simply chase the money that’s owed. Sure that’s really important, but stopping the cash-flow out of your business is equally as important.
How to get free credit The first step is to get all the invoices that need paying and work out the last possible date they must be paid by in accordance with the supplier’s terms. Do not pay any invoice until it is due. This may sound obvious, but it is surprising how many people pay all of their invoices on a certain day, even if some are not actually due. By leaving your invoices to the last possible day for payment, you are effectively getting an interest free loan from your supplier. Use it wisely to prop up your own cash-flow. However, that alone may not work.
The biggest mistake made by business owners If you still need credit, the next step is to negotiate extended credit terms with your suppliers. This means you actually have to ring and ask. However, most business owners fail to do this basic step. Instead, business owners allow the payment date to pass and wait to be chased by the supplier. Only then do they negotiate extended credit terms. This is a fatal mistake because if the supplier has had to chase you, it will be less sympathetic to your cause.
Why you are likely to get what you want Suppliers understand cash-flow problems. After all, they are business owners just like you. If you ring up before the date for payment and ask for extended credit terms, there is a pretty good chance they will give them to you. In fact, most suppliers would find this very refreshing, because it means they won’t have to waste their time chasing you. Also, your suppliers would much rather give credit terms than risk not getting paid at all.
So, make this courtesy a regular practice in your business, and you make it more likely that you will negotiate similar and larger extensions in the future when you really need them. Miss a payment without alerting your supplier and your chances of negotiating future credit terms start to decrease. Do it too often and your credit will be taken away completely. That could be the nail in the coffin for your business.
What to do when you leave the post office So, when you leave the Post Office clutching your invoices, immediately sit down and work out a strategy for how you will pay them. Don’t pay any until the final date and then take the largest and make a diary note two days prior to the payment date to call your supplier. Finally, get on the phone to your customer and get that money in!
How to get free credit without burning bridges - To learn more about this author, visit Michael Smyth's Website.
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Michael Smyth
(Visit Michael's Website)
Six years old sounds a peculiar time to
start to legal career, but that's the
first memory I have of going to my Dad's
law firm located in the heart of legal
London. So, with law running in the
family, the natural choice at University
was a law degree. I also had a keen
interest in Sports Law and obtained a Post
Graduate Certificate in the subject from
Kings College London.
I came to New Zealand for a year, but like
a lot of people I quite liked the place,
and I'm still here practising law as a
self employed barrister and running three
businesses: Approachable Lawyer,
Sportscounsel and The Sports Risk
Management Group (the last two even allow
me to combine my passion for law with my
passion for sport).
So in my 11 or so years of practice I have
read numerous cases, helped many clients
out of the mire and set up a number of
businesses. That means not only am I a
lawyer with an expertise in employment and
sport, but I am also a businessman. This
gives me a good insight into a number of
problems my clients face. I also like to
pride myself on my approachability - But
don't take my word for it, visit my
website www.approachablelawyer.com/pro
file.htm
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