Securing your receivables....

Are these steps worth the effort?

Let's assume that you have terms of “30 days net” with most of your customers but that they generally drag out payment to you so that on average they take 60 days from invoice date to pay you (i.e., 30 days overdue). If you can convince just 25% of your customers to pay on time and 25% to pay after 45 days, you will reduce your total receivables by 18.75%. This is usually a very achievable target. Apply that percentage to your receivables balance and that is the amount of additional cash that you will have in your business. If your receivables are usually about $1m, you would generate $187,500 in additional cash.

So, what are some of the management issues that need to be addressed to achieve this? Not all approaches are appropriate for every business or every customer but all should be considered:

1. Do you have a credit policy for the granting of credit to customers? If not, implement one and make sure that your customers are aware of it. Many customers will adhere to the policy once they are aware of it even if some will delay a few days beyond the limit. This is almost always better than allowing the customer to set the terms. Ensure that all new customers are made aware of the policy and expressly agree to abide by it or negotiate an “exception” as a special for that customer. If most of your customers take 60 days and you ask for 30 days and settle for 45 days, you are way ahead.
2. Both existing and new customers should be screened and credit limits set. Do not get into the trap of extending credit beyond a set limit to a customer, without negotiating terms for them paying you and staying within that limit or a newly revised limit. Nothing is worse (other than a default on payment) than having to cut off a customer without some warning if they do not manage to pay according to an agreed schedule. Consider your reaction if a supplier were to cut you off without warning. Also, offering extended terms shows a willingness to work out a payment schedule with your customer and makes them much more likely to stick to the terms.
3. Ask slow paying customers what you can do to facilitate faster payment. They should at least be aware that you are watching them and are prepared to work with them. What a great opportunity to show your good faith to a slow paying customer. There are so many situations, especially with big companies (where bureaucracy often prevails), where a simple win-win can be achieved by sending the invoice to the appropriate staff member and/or a copy to a second person, etc.
4. Remind the person dealing with your payments of your credit terms. Often the accounts payable clerk is not aware of your terms and a gentle reminder can be helpful.
5. Pester them (very politely) to pay more promptly. Your accounts receivable should have a relationship with every customer’s accounts payable and should phone them regularly, especially if they are not paying strictly within the terms. This should almost always be the nicest, most polite and friendly “squeaky wheel” in town. Developing this favourable relationship will often facilitate your account being settled expeditiously.
6. Consider cutting lagging customers off from further business (until they are within your credit terms). Doing this once often has a magical affect on their willingness to stick (closer) to the terms in the future. Of course, it is also a very powerful risk management tool. If they cannot pay, at least you have limited your exposure. It goes without saying that this must be used with a lot of discretion, especially if your customer can easily obtain the supplies elsewhere.
7. Consider whether you wish to continue doing business with them at all. This is especially effective if you have a shortage of supply in your industry. If it is known that the product is not readily available your customer should understand that prompt payment is required.
8. Consider whether you are dealing with the correct person to facilitate payment. In many companies accounts payable determines the amount to pay and to whom, based on general directions from the Controller. Create an exception by calling a senior person in your customer’s organization, someone you know, or can develop a relationship with, to ask that you be paid promptly.
9. Consider increasing your price to the slow-paying customer. Multiple price lists exist in many industries and there is often no reason why you cannot move a customer to a slightly higher pricing formula.
10. Consider offering a higher discount for prompt payment. Many businesses offer terms for prompt payment such as “2% - 10, net 30.” Some customers will stay within these terms and pay promptly to benefit from the discount. For those that do not take advantage of the discount, consider a phone call to offer them an even better discount. Tailor this to suit the occasion. Call a customer (who normally pays after 45 days), after 10 days have passed and explain that although they have missed the 2% discount, you are prepared to extend this, on a one-time basis, and give 2% for paying within the 30 days. A particularly effective method if you are in a cash crunch is to call a customer who owes a large balance and offer a discount of 5% if they pay within two days. This should be set at a level that it is so tempting that they will almost certainly take it. Of course one has to take into account the reputational impact of such a move.

Chris Wilkinson.                              

Certified Business Behaviour & Attitudes Analyst.               

Business Coach.

Tel: (905) 275-2907 (Mississauga).

E-mail: buspilot@bell.net

Tips to negotiate the best trade discounts.....

Someone once said that everything in life is negotiable and this is certainly true when it comes to getting a trade discount. I'm always happy to discuss and negotiate deals with our customers, because not only do we usually reach a win:win outcome, but I also get great insight into what our customers really want!

There’s a subtle art to negotiating a discount and I've put together a few pointers for you to point you in the right direction.

• Know your market. Do some research, look at competitors’ prices and ask for attainable realistic discounts. Know why you should have the discount and be prepared to put your point across.
• Understand what motivates the seller and give out the right selling signals. Mentioning repeat business is always a good way to negotiate a more favourable price, you’re more likely to get a discount when you’re ordering in bulk.
• Always be polite and courteous when you are negotiating. Taking a hard line may get you the result that you want, but any future relationship is going to be soured by your attitude.
• Make sure that you have some prices fixed in your mind before you start negotiating. Have an acceptable price and a walk away price. Be prepared to walk out of the shop with nothing if your expectations were not met.
• Always make it appear that you have lots of alternative options. Telling the salesperson that they are the “only stockists”, or that you’re really desperate does not put you in a strong position for negotiating that discount.
• Don't only focus on price - you've got a basket of items to negotiate on. If you can’t negotiate on price, you may be able to negotiate on the level of service. I’ve recently negotiated free delivery and installation of some new equipment even though I was unable to get the price down.
• It’s all about how you ask. Phrases like “Is this the best price you can do?” and “It’s a bit more than I wanted to spend really” are good ways of opening negotiations for those who aren’t used to asking for discounts. And you'll get better at it the more you practice - so the more you do it the better long term effects it will have on your future negotiations.
• Don't negotiate for a win:lose outcome. Your negotiation might be successful in the short term but a business that goes out of business because they fail to negotiate above their bottom line will only give you grief in the future.

At the end of the day, just keep in mind that a sales person will only ever give you a discount that they are happy with, so you have nothing to lose and everything to gain by asking to discuss the price. A salesperson will generally rather take a small hit in their commission rather than lose the sale altogether.

Chris Wilkinson.                              

Certified Business Behaviour & Attitudes Analyst.               

Business Coach.

Tel: (905) 275-2907 (Mississauga).

E-mail: buspilot@bell.net

7 tips to reduce warehouse costs…..

Cutting your warehouse labor costs can improve the organization’s overall efficiency and increase earnings. The key is to devise ways that produce an impressive return on investment instead of simply reducing staff. Warehouses generally claim a large amount of real estate on the premises. Therefore, reducing labor costs could make a big difference in overall expenses.

Step 1

Train your current staff how to work smarter using forklifts, devices for communicating across warehouse space, order-picking processes and cost control related to damages and breakage. Provide opportunities for employees to exchange tips for more efficient warehouse processes, and offer cross-functional training for warehouse, purchasing and shipping department employees so they understand their interdepartmental responsibilities and work flow.

Step 2

Award employees incentives for completing training, such as recognition, certification and, if feasible, cash bonuses. Also, provide cash bonuses for warehouse employees who work diligently to prevent on-the-job injuries. This ensures that a larger percentage of your workforce participates in efficiency-enhancing activities.

Step 3

Review your warehouse scheduling and employee hours. Unless your company’s shipping and receiving occurs on a 24/7 schedule, you may be able to create compressed schedules that accommodate your business needs as well as warehouse employees’ needs to achieve work-life balance. Reducing the number of shifts you run will significantly cut labor costs. Maximizing your employees’ work times can improve job satisfaction and, consequently, reduce turnover. Reducing turnover will save a considerable amount on labor costs — the cost to recruit, hire and train new employees can eat up a chunk of your warehouse budget.

Step 4

Select experienced employees to train new warehouse employees. Employees who actually perform warehouse duties are better able to provide on-the-job training for workers who may not have worked in a warehouse environment. For example, use current staff to train on inventory and supply chain management, managing inventory, industry practices for inventory audit, packaging, shipping and receiving.

Step 5

Install technology solutions for supply chain management to improve work flow and employee efficiency. This might result in lower labor costs through reducing staff; however, the training that warehouse employees receive may help them advance in other areas of the company. Supply chain management technology can be customized to meet your company’s specifications, as can warehouse management system solutions.

Step 6

Implement warehouse safety measures. Mitigating company risk associated with warehouse injuries automatically cuts your labor costs because you aren’t paying for workers' compensation expenses and potentially reassigning workers for areas with which they might not be familiar. According to the U.S. Bureau of Labor Statistics, in 2010, for every 100 warehouse employees, there were 4.1 work-related injuries that incurred additional labor costs such as absences or moving employees to other departments.

Step 7

Obtain employee input on warehouse and inventory best practices they believe will make their tasks and duties easier. Asking your employees for their opinions conveys the message that you value their opinion and, in turn, makes them happier employees.

Chris Wilkinson.                              

Certified Business Behaviour & Attitudes Analyst.               

Business Coach.

Tel: (905) 275-2907 (Mississauga).

E-mail: buspilot@bell.net