Cash Flow Management: Stacking the Odds in Your Favor Before You Sell

Cash Flow Management: Stacking the Odds in Your Favor Before You Sell

When it comes to cash flow management, the single most important factor is timely receivables. However, ensuring that you collect cash on time requires a vetting process that begins well before you sell and continues throughout the life of the customer relationship.

Considering that 43 percent of small businesses have customers who are more than 90 days late on payment, the receivables game is something with which many business owners could use a little help.  Here’s how to implement effective credit policies, and to ensure you’re utilizing your bank’s tools and services for getting that money into your account as quickly as possible.

Implement a clear credit policy

Ensure your company has a well thought-out credit policy that reflects your business goals.  How much risk can you take?  Who is responsible for making sure customers pay on time?  What happens if your biggest client pays late or not at all?  Who steps in?  Make sure your team understands your policies, and that they are formally presented to every new client.

Create credit profiles to help you set appropriate terms

When beginning a relationship with a new client, do your due diligence.  To help you assess risk and assign appropriate limits, consult industry credit groups and ask for financial statements and credit references from the new client.  “Always take a credit report and check your potential customers’ payment history and trends.  Put them on regular monitoring with your credit reporting agency so you can be alerted of any changes,” says David Knowles, group marketing director at Creditsafe, a leading commercial credit reporting company.  If the client is part of a larger entity, look at that business’ financial health, too, he advises.

Read the writing on the wall

It’s easy for a credit problem to sneak up on you, especially when the perpetrator is a longstanding client.  Mary B. Morgan, senior vice president, treasury management products and services at Regions Bank, explains that businesses can consider many of the same factors that banks review when assessing a potential credit problem, such as the general economic climate and industry specific indicators.  “Banks also review account management.  Is the banker seeing big changes in customer behavior?  Have they started overdrawing or depositing half as much as they usually do?  Are they reluctant to share financial data?  These can be indicators that something could be amiss,” she says.

When you suspect a problem, stay persistent and unapologetic in your follow-up.  Make sure you have a collections policy in place, and that you stick to it.  You may need to involve your legal team and extend a payment plan.  To further protect yourself, consider collecting a down payment or instituting a late payment fee. 

Facilitate a quick deposit

For a small business strapped for resources, the simple act of getting to the bank can seem daunting.  Morgan explains that many financial providers offer tools and technology aimed at making it easier to deposit money quickly.  Solutions include retail lockboxes in which customers mail their payments directly to the bank rather than your office and remote deposit capture in which business owners can scan checks directly from their desks.  “The file gets transmitted to your bank, and you don’t have to leave the comfort of your business to go and stand in the teller line,” she explains.

Depending on your business, these solutions may also be important for safety reasons.  “You don’t want to worry about your store manager walking to the bank with a lot of cash every day,” says Morgan. 

By being upfront about your policies, making smart credit decisions, implementing swift and consistent follow-up and considering technology options to facilitate deposits, you can dramatically improve your receivables process.  “Without cash, no company—be they small, medium or mega-sized—is going to be in business,” reminds Morgan.


This information is general in nature and is provided for educational purposes only. Information provided and statements made by employees of Regions should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Regions encourages you to consult a professional for advice applicable to your specific situation. Information provided and statements made by individuals who are not employees of Regions are the views, opinions, or positions of the individual who made the statement and do not necessarily reflect the policies, views, opinions, and positions of Regions. Regions makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented.