Tune into your customers
Written on the 10 March 2009
PROFITS simply don’t keep businesses afloat if the cash flows aren’t there.
HLB Mann Judd CEO David Jackson offers advice on how to avoid a collapse in customer payments.
He points out the 70-30 rule of thumb, that many companies rely on 30 per cent of clients for 70 per cent of their businesses, but what happens when your biggest clients that form the backbone of your cash flow are experiencing problems? What if they just can’t pay up?
“If you invoice customers for your services you want to know their financial position, and make sure clients pay you because if they lag behind, you lag behind too,” says Jackson.
“You have to get close to your customers and be in tune with how they are going. Be innovative, because if you focus on one major client and they fall through, then you’re in a hole. Some would rather focus on one key customer rather than pursuing other markets, as it makes life a lot easier with a lot less work.
“If you have many customers there’s more paperwork and more hours, but you know what, if two out of 50 clients fall over, you’ve still got 48 to fall back on.”
Diversity is the key advises Jackson.
“When you have customers experiencing difficulties you lose on two levels – firstly they owe you money and they can’t pay your invoices, and secondly, you’re not getting that ongoing work either,” he says.
“It’s what happens to a lot of subcontractors in the building industry if a builder collapses.”
He says another tip to keep cash flow is to send invoices more frequently.
“If you’re relying on them to pay, you need to keep an eye on it. Perhaps send invoices more often in smaller amounts – change invoices from monthly to fortnightly, or even weekly,” he says.
On the management side, most businesses are a reflection of what customers are doing, so while you need to keep an eye on cash flows, always be in tune with the customers as well.
“You have to be innovative. For instance, in the tourism industry companies are re-jigging packages to include weekends away, free breakfasts thrown in, that sort of thing. Markets vary and you have to keep customers interested,” says Jackson.
But not all business models are able to innovate so easily.
“The saying goes that you can’t change a wheelbarrow,” he says.