Four years ago I began to notice that my business’s cash flow would, like clockwork, experience two rough periods during the year. The first was between December and February and the second from July to the beginning of September. Specialising in producing short promotional videos known as ‘sizzle reels’, we had plenty of client work in-house during those periods but were lacking the funds to fuel our overhead. The problem was that many of our clients were taking up to 60 days to complete payment on their invoices.
I began working with my team to come up with creative ways to help avoid these financial ruts. Here are the six steps we took to correct our cash-flow woes without losing personnel or productivity.
Terms of engagement
- Adjust customer credit and payment terms. Initially, we requested that clients pay a 25% down payment for projects, but projects for smaller clients often took longer and so final payments for these were longer in coming. To remedy this, we increased the initial down payment for first- and second-time clients to 50%. We also increased the down payment percentage on our longer-term clients by a few points.
Offer discounts for early-payers
- As a fledgling company, the last thing we wanted to do was start harassing late-paying clients or demanding high interest rates on outstanding invoices. It’s not exactly the path to winning future business. Instead, we began rewarding clients a 3% discount if they paid within ten days of the billing date and a 5% discount if they paid within five days. This tactic encouraged more than 20% of our clients to pay faster.
- Establish ‘milestone payments’ for longer projects. We had always collected two payments – one upfront and the other on completion, but never in the middle of an active project. Yet with production work sometimes spanning 30 days or more, the lag between our down payment collection and our final payment could span more than two months.
The solution was to add a ‘milestone payment’ to projects lasting longer than 25 business days. This payment would be due directly after our clients approved the second rough cut of their sizzle reel, or the midway point in the project. If it wasn’t paid, we’d put a pause on production. Clients rarely took issue with this new instalment and it helped cut down on the waiting time between payments.
Create new revenue streams
- Create new revenue streams by expanding existing service packages. For example, we began offering a service to store client assets and project files for long periods of time, providing clients with the ability to re-edit their sizzle reel on site while saving them money in the process. For such add-ons, we requested that clients pay in full upfront, allowing us to increase our immediate transaction income.
- Retain control of the final product until it’s paid for. Prior to our cash-flow dilemma, we would give clients their final deliverables when they approved them – not after the final payment. We realised that by releasing control of the product, we were also losing some leverage in requesting speedy payment.
We began watermarking all of our products or offering select customers low-resolution videos for limited use until final payments were collected. This encouraged our clients to make a prompt final payment. In some cases, with this new policy in mind, they would pay us before we completed the project.
- Renegotiate vendor and freelancer contracts. In the video-production business, many companies complement their internal creative team with a core group of freelancers. My company was no exception. For our extended team members, I negotiated longer payment plans, offering the incentive of additional interest on their payment. This allowed us to keep them working on projects even though they waited a little longer to get paid.
To reduce costs, I put all the services we needed up for re-bidding and included new service providers into the mix. We renegotiated several less-expensive contracts. In one case, a new vendor offered us better services at half the price of our previous vendor.
How South Africa’s Small Businesses Plan To Invest Their Money In 2018
Here are their five areas they should focus their attention on in the next year and beyond.
Despite economic uncertainty, South Africa’s small businesses are positive about the future. In fact, our State of South African Small Business report reveals that 40% of small businesses are expecting to grow. However, to achieve growth without overextending their limited resources, small businesses need to invest wisely.
Here are their five areas they should focus their attention on in the next year and beyond.
When times are tight, companies typically reduce their marketing spend. This isn’t the case for 36% of South Africa’s small businesses. These respondents recognise marketing as a critical investment area.
They’d rather make a concerted effort to grow their customer base, than sit still and do nothing as consumer demand declines.
Without access to the latest technology, business growth can quickly stagnate. This is why 23% of South Africa’s small businesses plan to invest in up to date equipment, whether that be new machinery, mobile devices or computers.
The right investment in this area can give a business a real competitive advantage.
It can help boost profits and improve operational efficiency – both of which can help a small business withstand difficult economic conditions with greater success.
Consumers are spoiled for choice. Their needs are constantly changing and companies can’t afford to become complacent. To keep up with market demands, 22% of small businesses plan to invest in product development. Barring a few timeless classics, most products need a regular review and tweak to stay relevant and popular.
Digitisation is transforming business functions across the board. Technologies, like cloud software can take care of laborious administrative work.
This liberates employees from time-consuming tasks, enabling them to focus on more strategic work like customer retention and acquisition.
Technology has the power to improve productivity and efficiency. Which is why 18% of small businesses are going to focus their investment plans on this area of their businesses.
The customer should always be the priority. It doesn’t matter how good a product is, if there are no customers, then there’s no business. As competition increases, the user experience becomes more and more important to win over customers.
Business growth depends on happy customers and to achieve that, 18% of small businesses plan to invest in delivering better service.
All five of the above business areas are worthy investment focuses. The question is, how does a small business work out what to invest where? The only way it can invest effectively is with a full view of its company finances. A small business needs to be able to see which functions have provided the best return on investment to date.
It also needs to consider how much investment capital it has to spend. What’s more, before it makes an investment in say, marketing or product development, it must know exactly how and where the money needs to go.
The right software can help a small business access the real-time insights it needs to make better, faster financial decisions. To combat increased competition and market uncertainty, South Africa’s small business owners need access to up-to-the minute information from any device no matter where they are. An informed investment has the greatest chance of success.
The Simple Way To Pay Wages When Your Staff Don’t Have Bank Accounts
If you have employed casual workers over the busy season, you can pay wages even if they do not have bank accounts.
At Absa Business Banking, the things that are important to you are just as important to us. We understand your business needs, which is why we have developed tailored solutions to help you where it counts. Take CashSend Plus, for example. It is a payment solution that enables you to pay workers even if they do not have bank accounts.
It is safe and secure
Your employee will receive a six-digit access code and a ten-digit reference number, so that they can verify the transaction. The money is instantly available at an Absa ATM.
You can even pay yourself
We have all lost bank cards or wallets at some point in our lives. What an inconvenience. Well, it is good to know then that you can access cash by sending it to yourself. Now, that is what we call better.
Please speak to one of our consultants or call 0860 111 123 or visit your nearest branch.
Absa Business Banking
Do better business. Prosper.
Strategies To Help You Stay Out Of The Red With Cash Flow
Cash flow management is always essential, but in a recessionary environment it’s even more crucial to the overall health of an organisation. Here’s how you can keep your business growing and out of the red.
In every adversity there is an upside. This saying is particularly valid when it comes to managing your cashflow in a recession. As we all know, cashflow is the lifeblood of any business. Banks are implementing stricter lending criteria and this places greater strain on your business as the availability of cash becomes limited.
For savvy entrepreneurs there are a number of strategies that one can apply to ensure that you have the required cash to continue funding your business operations.
Conduct a rigorous overview of your costs
This is a particularly good time to review all your costs in your business and truly question each expense. Often this exercise reveals unnecessary costs that do not impact the effective operation of the business. Set yourself and your team a target to be able to reduce costs by 10% and then review these costs with each department.
A really good example to follow are costs that once trimmed have a ripple effect of cost reduction in other areas of the business. Scaling down on office rental has the advantage of reducing your utility bill, insurance and possibly also your telecommunications bill.
Managing your Debtors Book
If you are not already doing it, you should be reviewing your debtors book at least weekly, dependent upon the type of business you are running. Keep regular contact with all your customers, particularly those outside of their credit terms.
Chase payments from these customers regularly but fairly and ensure that you apply your own debtors policy and procedure.
If you find this difficult to do, appoint a third party to manage your debtors book for you but do not lose touch with your customers.
Ensure that you are invoicing your customers at the completion of ‘project’ and do not delay invoicing for a particular day in the month. This ensures that your customers are required to pay you timeously for the work done, for example within seven days of invoicing.
Review your Supplier credit terms
This is an important process to go through but recognise that your suppliers will be managing their cashflow as well. If you are a regular supplier and have a good payment history, they will be more willing to discuss an extension of payment terms with you.
It’s very important that you discuss any ‘broken agreements’ with them as soon as you are aware of them. If new payment terms are agreed, ensure that you can manage them.
Cash Flow Cycle
This is an ideal time to review your cash flow cycle to determine the length of time it takes from receiving an order to invoicing and receiving the cash in your bank account. Identify each step in the process and determine whether there are ways to shorten the cycle.
It’s always good advice to keep communication with your bank open but this is even more important in a recessionary environment. Should you require additional financing from your bank to be able to fund short-term shortfalls, ensure that you have a good business plan to support your application, as this will give the bank the comfort that you are ‘on top’ of your game, particularly where your cashflow plan is concerned. While bank finance should be your source of last resort, do not leave it until the last minute.
Following these strategies will largely negate the negative consequences that a shortfall of cash may have on your business.
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