We all know that making a sale is great however actually being paid is even better!!
From your knowledge of current practice in your industry, you not only have to estimate sales but more importantly know when you expect to get the invoices paid.
In today’s market there are opportunities with banking and credit card payment facilities for the opportunity for immediate payment however in some cases you could have to wait a month, two month and even up to three for your cash!
Experience over the years has found that the companies who could pay quickly tend to be the ones that actually don’t. Dealing with large organisations can be often more difficult than dealing with smaller ones, it can be preferable to have a mix of size of organisation within your portfolio of customers.
Another area to consider is contract business which has it’s own way of staging payments. Some pay a percentage up front, followed by stage payments followed by one at completion. This staging needs to be built into your forecast in order that you can anticipate when you expect money to be received into the bank.
Many companies have suffered from having lots of sales but not being paid in time has crucified the business.
Also if you offer discounts for early payment etc., these need to be built into your cashflow forecasts.
With regard to payments made in cash or immediately, the revenue appears in month one when the sale is made, however the ones that will be received in month one, two, three need to be reflected in that month.
Credit control is something that we will discuss later but I have been amazed how many companies don’t chase the money owed because they don’t like to upset their customers. You have done the work therefore you should be paid and if they don’t then this debt is actually costing you money so are they worth having!!!
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