By Jim Sobeck
Cash flow management is always important, but never as important as it is during an economic downturn such as the one we are currently in. You’ve probably heard the old saying, “Buy low, sell high, collect early and pay late.” That’s a simplistic view of cash flow management. Here are some of the things we do in my company:
Take all prompt-pay discounts. We ask our vendors for a prompt-pay discount. If they will give us one, we discount our invoices, as the cost of borrowing is usually less than the value of the discount. If we don’t get a prompt-pay discount, we pay in 45 days. Most of our vendors go along with that. Those extra 15 days beyond the net 30 terms (i.e., 30 days to pay the net amount owed on the invoice) we usually get from suppliers who don’t offer a prompt-pay discount is worth a lot to us over the course of a year.
Ask for extended terms from your suppliers. We also negotiate special terms with our top suppliers. For example, we have terms from some suppliers of a 2% discount for payment within 10 days, net 60 instead of net 30. That gives us the flexibility to either take the 2% prompt-pay discount or, if cash is tight, pay those vendors in 60 days.
Pay your bills with credit cards. If a supplier accepts credit cards, we wait until their payment terms are about to expire, and then we pay with a credit card. That gives us an extra 30 days or so, depending upon when we make the charge and when the credit card company’s cutoff is. We also get rewards points that we use for things like convention expenses and office supplies. We pay a large number of suppliers with credit cards as well as purchase many services such as telephone utilities, alarm services, dumpster fees and association dues. Look through all of the invoices your company pays in a month, and I bet you will find a lot of your suppliers who accept credit cards.
Accept credit cards. We also accept most major credit cards. We pay a small discount fee (as low as 1.69%) and then get our money in a matter of a few days instead of the 45 or so most of our customers take to pay us. And we transfer the credit risk to the credit card company. To me, just offloading the credit risk is well worth the credit card fee. Getting our cash sooner is a bonus.
Prepayment. We have some customers who, to get the best price or due to credit issues, prepay us before we will deliver their order. We don’t have a lot of those customers, but we do have some. It just goes to show that if you don’t ask, you don’t get.
Accept checks. I see a lot of companies that won’t accept checks any longer due to negative experiences with bad checks in the past. We gladly take checks because we use TeleCheck, which for a very small fee guarantees payment on checks approved in advance. It only takes a few seconds to run a check through the TeleCheck machine and get an approval or denial.
Jim Sobeck is CEO of New South Construction Supply, a building products distributor based in Greenville with nine locations in the Carolinas and Georgia. He is the author of ““The Real Business 101: Lessons From the Trenches.”