Managing Cash Culture of your Business

In theory, it’s simple. Enough money must come into a business in time to pay bills and fund development of more products or services. But many business owners allow a chink to develop in their cash flow, and if the chink becomes a gulf it can be fatal. Rob Dalton offers a guide to creating and maintaining a healthy cash culture

The most common issue that confronts owners of small and emerging businesses is managing cash, particularly during the growth phase of a business. While the ‘cash is king’ concept is widely acknowledged by business owners as the most important aspect of successfully managing a business, ‘revenue growth’ is almost always the major outcome on every business’s wish list.

Sales teams are typically deployed into the market to win sales and market share at all costs, however we rarely hear management teams enforcing the business’s key credit policies, procedures, strict payment terms, and profitability targets on new business. In every business, these aspects are just as important, if not more important than the new sale, because of the major impact on the business of having to finance growth.

So, what should business owners do to manage cash flow while also growing revenue?

There is no question that in order to improve the cash to cash cycle the whole business must be heading in the same direction and be very aware of the objectives. Many divorce the sales process from the debtor collection process, to the extent that often sales staff have no knowledge of the credit terms, credit application process, or even the debtor collection procedures. This is a scenario that often ends with a bad outcome for the business.

Here are a few ways to create a sustainable change to the culture of the business regarding cash collections:

• • Management should clearly articulate the credit/collection policies, processes and procedures to the sales team. The credit policies and procedures should be top-of-mind to the sales team and discussed in sales meetings on a periodic basis. The policies and procedures should be succinctly documented and given to the sales team, so there are no excuses for not knowing what they are. They shouldn’t be tucked away in a filing cabinet. Laminate the policies, make a mouse pad for the sales team, or even put up credit term posters in the sales office so they remain top-of-mind.

• • Management should set performance targets for debtor payments against terms. It is not enough to simply communicate to the sales team what the policies are. The old adage ‘what’s measured matters’ is most relevant when it comes to changing behaviours. The most effective cash collection measure is the time it takes individual accounts to pay–commonly known as ‘debtor days outstanding’. Anything outside trading terms or an acceptable range should be reported regularly to the sales team and the account manager. Such performance indicators are often included in the salary or commission structure, and so the sales representatives change behaviour because there is a financial impact or a consequence. While sales teams are often not responsible for chasing payments, if their pay or performance is linked to customer collections they are much more likely to give their client a gentle nudge around payment time.

• • Clearly set expectations with new customers. It is typical in winning new customers that we do everything in our power to impress with lots of bells and whistles on what we can deliver, and in doing so we neglect to reinforce what our expectations are around payment terms. It is difficult to change behaviours once they have been established and all too often we hear the catch-cry ‘but we’ve always been a little late with payment in the past’. Management should have a process to ensure customers understand the credit or trading terms right from the start, with regular reinforcement from time to time. This preferably should be done in-person with a written confirmation so there is no misunderstanding. If someone can gain an advantage, human nature tells us they will take it, so don’t allow the enforcement of policies to be sloppy.

If all customers adhere to the business’s credit terms then as a business grows, providing payment terms for creditors are similar or better, financing growth should not be an issue for the business.