I have heard many times from business owners that they would have a great operation if they could just solve their “cash flow problems.” Then, when you take a closer look, the problem is really a lack of profitability. They tend to not see the forest for the trees. Even during periods of rapid growth, if a printing business is run profitability, cash flow problems should not be an issue.
If a company is operating with good margins, staffed properly and managing accounts receivable, cash will flow. Even if a company is operating efficiently and is nicely profitable, if receivables do not turn, it will get into trouble. Similarly, if the company is not profitable, even turning receivables in 30 days will also spell trouble. This sounds like simple business sense, but often times, owners will go into denial regarding where the true problems exist.
If a company does not have sound credit/accounts-receivable policies and enforcement, it can spell disaster—even if the business is highly profitable. If a customer will not agree to pay invoices (not monthly statements) within 30-day terms, it should be your policy not do business with them. Moreover, any account that regularly goes over 60 days in accounts receivable should be put on COD with a firm plan to reduce the past due balance.
Does this sound like too harsh of a policy? Last year, I wrote about how to deal with accounts-receivable/credit issues in a blog (“Bad Customers Always Find a Home”
If you think this is too harsh a policy, I suggest you rethink how you want to do business. In these times, one cannot afford to do business with “unprofitable” or “at risk” customers. Slow-pay customers are often at risk, and most often become unprofitable. There can always be exceptions, but they should be made cautiously and only by top management to ensure any account with more liberal terms are agreed to and will result in a profitable client.
Some very good clients (like government agencies) may demand special payment terms, and exceptions like that may be good business. However, one must recognize that making too many exceptions may put pressure on cash flow.
The bottom line: Be honest and clear with yourself (and especially with your banker) about the real problem, or you have little hope of fixing it. Have the courage to raise prices, at least to cover inflation, and reduce staff to result in profitable margins. Fix profitability first, have sound credit policies and cash will flow.