Posts Tagged ‘vendors’

5 Signs Your Business is in Trouble

May 3, 2011

by Doug Smith, President, The Woodhaven Group, LLC

Here are 5 critical early stage signs that your company may be in trouble.  They all have to do with poor cash flow. If you are experiencing 1 or more of these,  as owner or CEO, you must act immediately:

  1. Vendors are reducing your credit limit:  This may be due to failure to pay on time, a poor credit report, reduction in the amount ordered or simply rumors about your company from other suppliers.  Are they asking for payment before they will ship the next order to you?
  2. Top people leaving for other companies:  When a company is in trouble the weakest performers will be the last to leave.  The top people will notice problems and find reasons to change companies.  Be concerned if this starts happening as the top people in your company will be talking to each other.
  3. Your accounts receivable balance is increasing:  This is the cash your company needs to live on.  If sales are not increasing but the accounts receivable balance is going up then you need to find out why and fix it.  Are there quality problems?  Are invoices not being mailed on time?  Do you have a couple large customers in financial trouble?  Is anyone assigned to work slow payers?
  4. Inventory and accounts payable are increasing but sales are down:  Is someone ordering inventory as if there is a big sales increase occurring?  Who is approving purchase orders?  Get with key suppliers and see if you can return inventory and get a credit off the next invoice.
  5. Gross margin is dropping:  This is cash not available for the company to use.  Is there a quality problem requiring replenishment of goods sold?  Was there a price increase from a supplier that was not passed on?  Is the sales department giving price breaks just to get orders?  Are competitors offering a better product and sales is cutting price to compete?

Management must maintain a dashboard of key indicators that are monitored daily or weekly.  This will allow the management team to identify problems early on and take action.

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Network Upfront To Increase Cash Flow From Accounts Receivable

April 23, 2010

by Doug Smith, President, The Woodhaven Group

Great news!  Your company just landed that big account everyone had been pursuing for over a year.  You took it away from a major competitor.  Sales and marketing is talking about the importance of networking and relationship marketing.  The sales manager has visions of bonuses yet to come.  The head of the company (is that you?) holds an all company meeting to announce the victory.  Someone puts the new client’s CEO on a Christmas list to receive that special cheesecake that goes to top customers only.  Well, good for you.

I’m sure everyone throughout the company will make sure the product or  service is delivered as promised and on time.

There is one important point to keep in mind.  The new relationship is not truly culminated until you are paid for all the things you are going to do for this new client.

Here is where a bit of networking and relationship building needs to occur that usually never happens.  I suggest that before the ink is dry on the new agreement that your company’s accounts receivable manager has a friendly one on one kick off conversation with the accounts payable manager of your new client.  If possible a personal meeting would  be better.  At this meeting it is important to identify all the key points for both sides that will assure that  invoices will be processed and paid as expected. 

 Topics that should be addressed:

  1. When will the invoice be sent.
  2. How will the invoice be delivered.
  3. Who the invoice should be sent to.
  4. What is on the invoice:  Example:  purchase order number, invoice number, date of invoice, quantity, individual pricing or progress payments, terms including due date, late fees, discounts for early payment.
  5. Review the monthly statement you will send and encourage them to reconcile it.
  6. How the payment will be made:  by check, ACH, wire, credit card, other.
  7. Who to call when there are questions or mistakes on the invoice or payment.
  8. What is the internal process for getting an invoice approved and paid at your client.  Is there a time lag?  Who has to approve payment? Are there any documents that need to be included? How can the process be expedited?
  9. Expectations of on time payment.

All of the above creates discipline between the two companies in the invoicing and payment process.  More importantly, a personal “real person” relationship has been developed early in the engagement before any problems occur.  This will make it much easier to remedy any glitches or situations that may come up since there is now a face with a name on the other end.

It would not hurt to periodically call the accounts payable manager and thank them for being an easy customer to do business with.  Nurture and maintain the relationship at this level as business grows  between the two companies.

There is one other benefit that will come out of this.  If your client finds themselves struggling sometime in the future, payments to their vendors may slow up.  Don’t be surprised if due to your close relationship that your company is kept current while others find payments being delayed.

All of this helps assure that cash keeps flowing into your company so more money can be invested in marketing to bring in other big clients like this one.

And about that  cheesecake for their CEO.  It might be nice to send the accounts payable manager at least a box of cookies.