3 Business Success Principles for a Healthy Cash Flow

Regularly reviewing the financial health of a business can help evaluate the success of the business. The best way to check a company’s financial health is to assess the business’s overall cash flow. 

When there is a positive cash flow, it will:

  • Help fund company growth 
  • Reduce company debt 
  • Withstand obstacles 
  • Maximize shareholder returns 
  • Outperform the competition 

Learning and implementing cash flow success principles can help a business prosper and grow in all areas. 

Business Principle #1 – Increasing AP and Which Mistakes to Avoid

It’s important to note the distinction between cash basis and cash flow. Cash basis recognizes revenues/expenses when cash is received/paid out. Cash flow refers to the net balance of money moving into and out at a specific time. 

Ensure the Accounts Payables’ (AP) staff marks and records the difference of cash basis and cash flow. Verifying this distinction will strengthen working capital and free up cash.

5 Tips to Strengthen AP 

  1. Create management workflows.
  2. Strengthen the purchasing approval process.
  3. Understand how expenses are tied to the sales costs.
  4. Communicate with vendors about any potential late payments.
  5. Build relationships with the customers’ Accounts Receivable (AR) personnel.

5 AP Mistakes to Avoid and What to Do Instead

  1. Avoid Delayed Communications – Follow up when payments are past due. 
  2. No Accountability – Hold yourself accountable as the KPI owner.
  3. Losses from Bad Credit Risks – Prevent sales reps from overriding credit limits. 
  4. Misallocating Cash Payments – Have a system and know which payments are outstanding. 
  5. Poor Staff Training – Train your staff on how to handle late-paying customers.

Business Principle #2 – Collections Conversation Tips

When collections are not received timely, it can disrupt the cash flow. Having a comprehensive credit and collections policy (including DSO, aging tolerances, and recovering aging receivables and bad debt guidelines) can help guide staff on handling the different situations. 

Learning and implementing the different types of collection conversations can help resolve the late payments positively. 

6 Collections Conversation Tips

  1. Be Proactive – Be persistent and consistent with following up on an invoice the first day it’s past due.
  2. Be Personal – Make a phone call to the AP department and avoid using automated letters/emails. 
  3. Don’t Make Assumptions – Mistakes happen, check-in, and make sure the late payment wasn’t the result of a misunderstanding (i.e., business crisis, invoice, or contract confusion). 
  4. Be Cooperative – Remain positive throughout the conversation. 
  5. Maintain a Positive Tone – Customers are more willing to work with you to find a resolution when you want to work with them. 
  6. Ask Additional Questions – Learn why the payment is late, listen to their tone, and ask more questions (if needed). It can help you determine if the customer wants to resolve the invoice.

Business Principle #3 – Strategies to Improve Your AR

Implementing AR strategies and processes will help to guarantee timely payments and improve business cash flow. 

1. Develop Firm and Clear Credit Policies 

  • Qualify customers before providing credit
    • Internal scorecard 
    • Background check
    • Review references 
    • Credit history 
  • Clearly define the terms of sale
  • Determine sales terms for each customer

2. Provide Payment Options

  • Credit or debit payments
  • Cash and ACH discounts 

3. Maintain Accurate Customer Files

  • Terms
  • Contact information 
  • Financials 

4. Invoice on Time and Collect Payment within 90 Days

  • Invoice automation 
  • Electronic billing systems
  • Customer portals 
  • Send reminders 

5. Watch and Review A/R Metrics

  • Determine value-at-risk and DSO for each customer
  • Bill customers after providing the item or service

Keep Your Billing Current with Medbill 

As a full-service DME billing service provider, Medbill helps its customers stay up-to-date on claims and cash flow. The Medbill team can assist you with document review, claims submission, and more. 

Contact us today to learn more about Medbill.