5 great tips for a healthy cash flow
Updated: Dec 20, 2018
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Before we get to today's question: This is a continuation of the zero or minimal budget tips of getting more clients. Please click here if you missed the first blog in the ‘tips’ series or click here if you missed the whole Q & A series.
Thanks for answering our questions. As you know, I have a part-time job and a part-time business. My problem is cash flow because clients do not pay on time. I pay cash for stock and ask them nicely to pay at the end of the month but many of them don’t. Tiny from Soweto. (not her real name – her part time business is selling upmarket clothes out of the boot (trunk) of her car.
Thanks for reaching out. I am adding your question to the ‘great tips’ series so I will mention general cash flow tips that may not necessarily apply to your situation. The general principles remain the same irrespective of what kind of business you are in. Knowing your determination and diligence, I have no doubt that if you apply all these tips and offer great service it will take your business to the next level and some of what I mention now will be relevant to you soon.
1. Old stock
If you sell tangible products, you may now and then have old stock that just loses value by the minute. That’s time for a clearance sale. Announcing a sale creates one more contact opportunity which will even help to move your new stock. In your case, Tiny, it may be at the end of a season because clothes are seasonal.
2. Look into your long standing contracts
Get into the habit of periodically re-evaluating your long standing contracts. You may be paying for services you do not consume or no longer need. You may need the services but not all aspects of the services you are paying for so you can renegotiate. If you still need and use all the aspects of the contract you could renegotiate the rate. The supplier of the service wants to keep you as a loyal client so they will do their best to keep you. In your case it can be negotiating terms like 30 days with your suppliers after proving that you are a valuable client. Most of the time this is not an option in your industry but the worst that can happen is that the supplier can say ‘No’ so it’s worth trying.
3. The power of a deposit
If you are offering a service that costs a substantial amount, charge a deposit. This does not only help your cash flow situation but also helps you to keep the client. No one wants to lose a deposit for no reason. In your case you do not sell high ticket items but they are sort of high ticket to you because they cost you a lot of money upfront. You can incentivise clients by offering a discount if they pay a deposit. I love a good bargain and I know I am no exception – if you offered me a discount I would make use of it. More on the charging a deposit under the next point.
4. Reconsider your pricing
You do not have to be the cheapest to get more business. Look at what the market is doing and see how you can increase your price without a negative impact on demand. Offer additional value and increase your price more than what the added value costs. Even if you are a retailer who sells exactly what the guy next door sells you can be creative and find ways of offering something extra. This is a bit easier in the services sector like consulting because comparing you with your competitors is never a matter of comparing apples with apples. Price is always associated with value so when your rate is higher the perception is that that your quality is higher. You can only do that if you are sure you really offer great quality because disappointment happens when expectation > delivery.
In your case a deposit can be the part payment that the customer pays on delivery or if they order something then charge the part payment on ordering which is the normal meaning of deposit. I don’t know who came up with this term but this idea is called a ‘Chinese discount’ – with no disrespect to the Chinese. This is how it works – you up your base price and then offer a discount which is the same us the price hike. If your selling price is R800 you can up it to R900 and give a R100 discount for a part payment on delivery or on order then paying the balance at the end of the month. You still get your price and the customer gets the warm fuzzy feeling that he/she scored. You can even give a R150 discount for paying C.O.D. A R150 sounds substantial but if you have already bumped up the selling price by R100 it means the effective discount is R50. If you want to be a serious retailer these are the games you should learn.
5. Do not leave getting paid on time to chance
If anything is important, don't leave it to chance. Not leaving anything to chance means anticipating it, planning for it, working on a strategy and implementing your strategy. It is true that success is not for sissies. Over the decades I have found that one of the most soul-destroying experiences is chasing payments. I started off as a Mr Nice guy until I decided move over Mr Nice Guy here comes the lady with balls!
We all complain that clients do not pay on time but we do not realise that it is in fact our fault. I don’t blame you for reading this one more time and I don’t blame you for shaking your head in disbelief. The fact is, we teach people how to treat us. If we let clients think that it is okay not to pay us on time they will take advantage of that and pay the no-nonsense sellers on time. Become a no-nonsense seller.
You do not have to threaten people who do not pay on time. Simply give an incentive for paying on time and impose penalties for late payments. How do you respond to businesses that have that policy and state it upfront? I guess you simply comply and keep Mr nice Guy waiting. Using the example above, you can add one more condition to your Chinese discount story. Selling price R900, C.O.D. R750, deposit on order or on delivery total R800 last payment at the end of the same month – just add late payment is R950.This is a legitimate way of doing business and for some reason small businesses think that this has something to do with not being a nice person. You say that you ask them nicely to pay on time. Since when did asking nicely produce results?
I know that at this stage advertising does is not relevant to your business but I just want to make it clear that this whole series of zero budget / low budget tips is no substitute for advertising. The old adage will always hold true: ‘When times are good you should advertise, when times are bad you must advertise’. The first time I heard this it was in an advertising course 31 years ago and it is still applicable today. However, no matter how huge your advertising budget is, ignoring some of these tips will always cost you money.
1. If you want to join the list of the no-nonsense entrepreneurs, you should work on your getting-paid-on-time strategy and have the balls to stick to it.
2. Add these tips to the ones in earlier blogs and see your cash flow woes diminish by the day.
3. This week tell at least one person about this service. You never know whom you can help by sharing this information.
Next week’s topic
More great tips
Till next week
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