With tariffs and talks of a recession on the near horizon, collecting cash has got to be number one on your list of priorities.
Cash is king, and managing your cash flow is the next skill you need in your financial toolbox.
Here are the top 7 Cash Flow Commandments
1. Don’t Be Your Customer’s Bank
When you wait to collect cash from your customer, you effectively become their bank.
You carry the liability of the financial transaction.
And you are not in the business of financing any business other than yours.
I repeat: Don’t be your customer’s bank.
2. Don’t Treat All Customers The Same
The smaller the customer, the faster the payment should be.
GCs and builders have established processes and approvals in place before invoices are paid.
Just because GCs take 30 days to pay you, that doesn’t mean all customers get that same flexibility.
3. Don’t Start Anything Without A Deposit
When supply chains fluctuate and material costs change, you need a materials deposit.
A materials deposit is the bare minimum.
If they want a locked-in price for materials, they need to pay so that you can purchase them.
Also, ensure your quotes/ estimates are good for a shorter period OR your agreement addresses material price changes.
Get as much cash up front as possible.
Customers are always more eager to pay to get started than to pay when everything is done.
4. Don’t Feel Bad Asking For Payments
You can still offer good customer service and NOT extend credit to your customers.
You’ll never get a bad review for requiring agreed-upon deposits and progress payments.
You’re not a bad person if money is part of every discussion with your customer.
You’re running a business to provide for your family and your employees’ families and to so great work for your customers.
Money is what makes all of those things happen.
5. Don’t Accept Only Cheques As Payments
There is ample research indicating that people pay faster when they have more options to choose from.
Everyone accepts cash, etransfer and cheque.
Fewer accept credit cards, but credit cards are the fastest payment method and the only way to automate the administration of customer payments.
You can either build in the 3% credit card charge in ALL invoices, or use a tool like Xero that can attach the 3% automatically if they choose that option.
Remember, your customer is likely feeling the financial crunch to some extent, so the credit card option also provides them with flexibility.
6. Don’t Let Your Invoice Be A “Surprise”
Send notifications (which can be automated) that remind customers that payment is due upon completion and that a specific date is the anticipated completion date.
Sending 3 reminders the week leading up to completion is not obnoxious.
It’s smart business.
Don’t let your customers act surprised that payment is due.
And then, they take a week to make the payment. Urgh.
7. Don’t Let Old Habits Die Hard
The economy is slowing and it is expected that it will shrink in 2025.
Contractors who are not proactive will get squeezed the most.
Be prepared to adapt and sharpen your pencil when it comes to cash collection.
It can be hard to stick to your guns when cash gets tight.
If you need an excuse to make changes with existing customers, tell them you have a new policy. ‘Policies’ have more teeth than preferences.
Don’t get stuck paying everyone but yourself.
