SUMMARY
In our business cash is king, and cash-FLOW is all about consistency (i.e. collections automation). Many showrooms are shocked when I tell them that we’re switching as many of our accounts over to paying with credit cards as possible. Here’s why…
——————
QUICK JUMP
- The Cost of Non-Automated Collections (work smarter not harder)
- Know Your Receivables (the hidden costs of bad debt)
- Get to the Front of the Line (why getting paid fast matters)
- Credit Card Processing Fees (there’s an upside to consider)
——————
The key to having a healthy cash flow is money in. If you’re waiting around for weeks or even months for accounts to be paid in full, good receivables become old receivables… which too often become dead receivables.
It’s no secret that many lighting showrooms survive on construction orders. It’s also no secret that most construction projects go over budget. Because lighting is near the end of the build process, there’s a limited window of time to invoice and collect. After the construction loan closes, the collection rate goes way down.
——————
A THINK-QUICK QUESTION
Have you reduced an invoice more than a time or two in the last few years to “settle” and get paid (late) by a customer? If so, not only is there a big hole in your money bag, it’s one you can’t track. A reduced invoice doesn’t show up as late or bad debt, it’s just a reduction in revenue and cash that you DIDN’T get paid, despite having all the same COGS and expenses.
——————
In my experience, far too many lighting showrooms are either inconsistent or take too long to get invoices out (or both). When the budget runs out or the construction loan closes, there isn’t enough money to cover the overages. Too often, that leaves at least part of the lighting invoice unpaid.
If I get a question from a lighting showroom about why sales are up but cash in the bank isn’t, my answer is almost always “you’re not getting paid fast enough”. The solution then is simple: Get paid faster.
THE COST OF “NON-AUTOMATED” COLLECTIONS
Are any of these true in your showroom?
- I answered “yes” or even “probably” to the quick-think question above.
- I write off more than 2% of my A/R in any year OR have more than 5% that gets to 90+ days past due.
- I often pay vendors late.
——————
The big reason we’re switching even our larger accounts over to paying with credit cards is that we can automate our collections process, which makes it so much easier. At first, we were very wary of the costs associated with processing fees (as most showroom owners are), but we soon realized that there is also a cost associated with manual invoicing.
The answer became very clear when we asked ourselves this question: which costs us more – processing fees or inefficient collections?
Know Your Receivables
Bad debt comes in many forms, and it’s often the easily-ignored “little” numbers that you need to pay the most attention to. It’s easy to focus on the handful of large, overdue invoices and think you’ve got your collections handled, but what about the hundreds of small amounts people owe (everyone say it with me: “backorders and order changes suck!”)? On their own, those tiny amounts aren’t worth getting aggressive on, but I bet that when you add them all up they’ll be a much larger amount than you expected.
How much bad debt are you writing off?
It’s worth crunching the numbers. It’s not uncommon for showrooms to run an A/R report and find that their uncollectable debt is somewhere between 5-10% of their total sales.That hurts!
All it took was one good look at our bad debt and the totaled up “tiny old invoices” and we decided to automate our collections by pushing our customers to pay with a card.
Get to the Front of the Line
While Cash is King to us business owners, consumers have made it clear through their spending preferences that Convenience is King to them. The more convenient you make it for your customers – even your account business – to pay you, the earlier you are in the meal line. Plain and simple.
Easier Means Faster
Like it or not, credit and debit card payments are the standard (when did you last write out a check as a consumer?) because they take so much less work.
Consumers also love that they can earn rewards points for credit card purchases, and they factor in the ability to do so when choosing where to shop.
Just adding a simple “pay now” link in the invoicing emails we send out to our customers has drastically changed our turnaround, and we’re getting paid in MUCH less time.
We’re so much more likely to get paid on time and in full when the payment can be made right from the email. And if you automate those emails so that they go out right away? You’ll never be last in line again.
Paying Processing Fees Might SAVE Money
I know what you’re thinking: But what about the processing fees? Won’t they just eat into my profits and hurt my bottom line? I can’t afford to lose that much, especially on my contractor accounts!
Maybe.
Here’s the thing: credit card processing fees typically aren’t more than 1.5%-3%. If your old or bad debt is regularly higher than that, then it’s a no-brainer.
—
Look at your numbers. If you find yourself losing more than 2-3% of your accounts receivables to bad debt, then getting paid faster with credit cards is going to be a no-brainer, money-saving, smart-idea move for your showroom.
—
COMING UP
Don’t forget to check out Part 2 – where we’ll be diving into more detail with more strategies and ideas for getting paid faster.
If you want to learn more about how credit cards can simplify your collections and save you money, click here to see the big things XOLogic can do for your showroom.
