Cash is still king!

May 12th, 2017

Just about the £s?Professional services firms sell services, as opposed to products and the costs of supplying those services are largely made up of people’s time. Whether the charge to the client is based purely on those hours, or is fixed in advance or even contingent on a result, the income needs to cover the cost of that time, the other business costs and generate a profit for the partners and owners.

In many firms, the time between paying the highest costs – salaries and wages – and the receipt of the cash is measured in multiple months, causing heavy demands on working capital and cash-flow. This is often accepted as the norm – if it takes 3 months to do the work, a few weeks to agree everything with the client, the bill is sent 4-5 months after the work started. Many business clients will pay on the due date, usually the end of the following month, although many will drag their heels. Personal clients tend to vary wildly in the ways they pay their professional advisers, from “immediately” to “only when chased … repeatedly”.

As well as looking at how much is invoiced and the balance between fixed, contingent and time-based fees, there are a number of ways to improve both the billing cycle and the payment cycle. As a starting point, do you:

  • use professional credit control and debt collection services, whether in-house or outsourced, or rely on your managers/associates/partners to chase debts?
  • invoice work as it is completed or wait until the month/quarter-end?
  • have any on-account invoicing and payment, or only invoice at the end of the assignment?

Is debtor days the problem?

Do you know

  • the debtor days figure for the whole business?
  • which departments or functions have the longest-outstanding debts?
  • which have the shortest?
  • why they are so different?

Whilst some businesses get stuck in statistics, some basic information is vital. If you don’t know what the figures are, you can’t assess what’s reasonable and what to aim for.

At what point do you start chasing the debts as it is often only when they are overdue and, at this point, how often is there a query about an invoice? How about phoning them a couple of days after the invoice has been sent, to see if it’s got to the right department and are there any queries? If you establish what the queries are early on, you have far more chance of resolving them and still being paid on time and, if there is an error or issue, you are seen as more proactive and helpful to the customer

Can you afford to leave things as they are?

With a background as an accountant and used to working with a variety of businesses, helping them to improve their operations and processes, I am well-positioned to help you identify the processes within your business which are hindering your cash-flow, create new processes and ensure they are implemented where and when they are needed.

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