Cash Flow Issues?
As an entrepreneur you need cash to pay the bills, your team and to make purchases to keep the business afloat and grow but how do you handle your cash flow successfully?
I met with one of my successful clients; who had the same question. She couldn’t understand how she is always booked with patients awaiting her services in both her offices yet she is having cash flow issues. She wanted to open a third office but the funds were not there and she was baffled.
A closer look at her business revealed the answer; payment. She had hundreds of thousands of dollars outstanding from patients and insurance companies. The rule all entrepreneurs must live by; is that of cash flow: cash being the life line of business mean the sooner she is paid by patients and the insurance companies, the easier for her to manage her cash flow.
This problem is not new to me as a business consultant; I’ve seen where this payment/collection problem has hurt business. The longer receivables are outstanding, the more damage is caused to a company’s cash flow as it puts the outstanding amount in limbo and lowers the odds of payment. Be aware that the longer it takes to collect outstanding amount, the higher the collection costs, which can cut into profit as it becomes necessary to engage a debt collector or to sell the debt.
The only solution is to collect payment. Payments I like to cycle; the cycle starts the moment the cash is “out the door” i.e. the service is complete or goods are passed and the user promises to pay. The cycle ends when payment is complete.
Therefore, my client cycle would start the moment the receptionist greets the patient, to include indirect and direct cost of materials needed to complete the service and ends when the patient pays.
Too many entrepreneurs fail to understand the time value of interest and that longer payment cycles mean more operating capital will be needed to run the business, hence growth slows.
After showing my client how important the cash flow is for growth I gave her two (2) quick tips based on what I saw lacking to improve her cash flow:-
1. Use more payment options – make it easy and convenient for patients to pay. Accept ALL cheques, credit and
debit cards. Use online and telephone payment options.
2. Use contracts – enter into a contract with patients who do not pay up-front and include “charges” for
financing and a clause for collection that should the patient fail to pay and she has to contract a debt
collector then those are charges to be paid by the patient.
I made her aware that the more convenience a patient has in paying; the greater the odds of them making payment. I also made her aware that essentially; she has given interest free loans and jokingly told her that she is really in the business of loans via waiting indefinitely on interest free payments. So she now understands the importance of timely collection on her cash flow.
If you are looking for an actionable formula to grow your business; connect with me to learn how.