Posts Tagged ‘guide’

Use A Collection Attorney For Delinquent Accounts Receivable

May 11, 2010

by Doug Smith, President, The Woodhaven Group

You performed the service for your new customer as spelled out in your contract.  Your management team even did a few things at no charge to make sure this client was happy.

Now it is time for this customer to fulfill their obligation and pay the invoice in full.  Instead, no payment as agreed.  Promises to pay are not kept.  There appears to be no attempt on your customer’s part to work out a reasonable solution.

It is now 60 days beyond the final due date.  Your company deserves the cash from this customer.  You have made sure to pay all the bills in full allocated to this project.

The new question now becomes, do you send this account to a collection agency or to a collection attorney?  There is no hard and fast rule but I know which I prefer.  I will take a good collection attorney every time.

First, I assume the collection is not small which qualifies for small claims court.  Once I have determined that then here are the thoughts that guide me to using a collection attorney:

  1. Without question a letter from an attorney’s letterhead carries  more weight and stands out from the run of the mill collection agency form letters the deadbeat client is probably already receiving.  My attorney’s letter will move to the top of the heap.
  2. If the situation eventually does go to trial then I have had the same person on the account from the start.  There is no hand off from a collection agency.
  3. In my opinion, a good seasoned collection attorney should have more experience and insight into the process of collecting from an account than a  just hired account manager at a collection agency.  My experience has shown that good collection attorneys come across as professional and better able to structure a solution that works for everyone.  However, a good attorney can also go win in court if it becomes necessary.
  4. I have always felt comfortable knowing that with a collection attorney I have someone who knows the law and would not do anything to jeopardize his standing in the local legal community.  In otherwards, there are no legal or ethical shortcuts I need to worry about.
  5. By giving the attorney all of my delinquent accounts he will be committed to seeing every delinquent account through to resolution.

I have heard the one downside to using a collection attorney is that it costs more than using a collection agency.

I personally have not found that to be the case.  Instead, I believe the attorney collects more money more efficiently.  Some attorneys charge by the hour and some by the hour plus a percentage of dollars collected.  I have negotiated a straight percentage (30%) and due to the steady volume given the attorney it has worked well for both sides.  Sometimes one letter collects the full amount and other times he has to go to court. 

Some businesses prefer using a collection agency.  That is ok.

But for me a good collection attorney was like a valuable member of my management team.  Why?

Because he delivered the cash!

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Key Supplier Relationship Will Increase Cash Flow

May 3, 2010

by Doug Smith, President, The Woodhaven Group

The relationship between a key supplier and customer can be like family.

Executed correctly this relationship can profitably grow the sales and profit of both companies.

As you become more important to your supplier here are a few tips that can act as a guide to increase the amount of cash available for you to grow your business:

  1. Ask for and get extended terms on each invoice.  Once established you should not have to pay the same terms as a new customer of your supplier.  If 30 days is normal then ask for 60 day terms.
  2. If you have inventory make sure your supplier exchanges slow-moving inventory units for what is being used or sold the most.  This should be done a minimum once every 6 months, preferably once per quarter.  In some industries it makes sense to do it once per month.  Show future sales projections so your supplier can justify taking this action. 
  3. When the above inventory is returned make sure there is no restocking charge applied.
  4. If your business is seasonal, you may want to negotiate paying less during the slow months and more during the busy months.
  5. Have your supplier fund the purchase of a major capital item you need to buy to grow your marketshare. This may be a new piece of equipment needed in your manufacturing facility that will allow you to be more productive.  The payment can be spread over a multiyear term with a small amount added to each unit of inventory purchased from your supplier.
  6. Once you have become a major customer or “partner” of your supplier negotiate putting the key items being bought on consignment in your facility.  This inventory remains on the books of your supplier until you are ready to “pull” them for use in manufacturing.  Only then does the terms begin on your invoice.  If you combine consignment with extended terms then your cash flow really explodes.  To properly execute a program like this requires the use of security agreements and physical inventories but the cash savings is worth it.
  7. Negotiate additional advertising coop and simplify how it is processed.  Many companies offer a marketing rebate or credit to their best customers but then make it almost impossible to get due to extreme rules and regulations.  If possible, agree in advance on an advertising coop amount and deduct a fixed amount each month from invoices.  At the end of the year you can reconcile any differences.
  8. Ask for a price decrease.  You may be surprised how often a supplier will grant this wish to a major customer.  They realize the cost to acquire a new customer is high and realize your increased margin dollars over time will make up for a 2-3% drop in price.
  9. If you cannot get a price decrease, then get an agreement that the price either will not be increased or will be increased only by no more than a certain percent for a specific period of time.
  10. Regardless how great the relationship is and regardless how many concessions you are given, you need to still periodically compare prices in the market place.  If not locked down  prices can start creeping up.  There should be an understanding in a good relationship that you are always getting the best price possible.

Suppliers can be a great source of cash flow.  I have successfully used every one of the tips mentioned here.

A lot of the cash or money used to grow your business can come from well executed cash flow strategies.

This is one of them.

Increase Cash Flow With A Unique Value Proposition Strategy

April 27, 2010

by Doug Smith, President, The Woodhaven Group

What makes your company unique from the competition?

Can you ask a higher price and get it?

What is your competitive advantage?  Can you say it in about 10 words?

A unique value proposition is what your company is promising to deliver to a prospect that is better than anyone else can deliver.  A well executed value proposition delivers benefits that will address your customer’s wants or needs in ways that competitors wish they could duplicate but cannot.

If you have no value proposition or have an unclear value proposition then you will not be different from the hundreds or thousands of companies competing in your category.  You will get lost in the crowd.  

Your business will find itself competing on price as the differentiator and we all know there is always someone who is willing to keep dropping the price to get the deal.  This will kill marketshare, gross margin, profit, cash flow, and eventually your company.  Don’t let the competition dictate your pricing, profit strategy, and your future.

Here are a few thoughts to guide you when considering your value proposition:

  1. You must first know who your prospective customer is and what they want.  What is their pain?  What is their want or desire?  Do they think of your company first as a source to address that desire or pain?  Once you have identified your prospective customer, take a sample group and ask them what their biggest need is.  You will soon see a pattern that will give you direction.
  2. Be specific about the benefits you deliver, how they address your prospect’s wants and needs,  and how they differ from the competition.  Also, keep in mind that benefits differ from features.
  3. Show that your company has experience delivering this value proposition to others.  Third party testimonials often close a sale.
  4. Is your company capable of consistently delivering your value proposition at the quality level that you promise and your customer expects.  In otherwards, don’t over promise and under deliver in an attempt to be different.
  5. Can your value proposition be easily duplicated by others?  If  it can then do you really have a unique value proposition?  A $1.00 menu item or free delivery are examples that have quickly become the norm in some industries.  Make it hard for others to copy what you do.
  6. A well thought out value proposition becomes an effective guide for strategic and tactical decisions involving product development, customer communication, marketing, recruitment of talent and overall financial planning.
  7. Can the value proposition evolve over time as your customer’s wants and needs change?  If so, it will allow your business to think strategically and lead your customer forward with game changing innovations.

A unique value proposition gives your company a road map to growth and increased cash flow. It will make you different and allow your business to ask and get a higher price for what you offer.

Don’t try to be all things to all people. 

You just waste cash doing it.