make the necessary collection calls. Many businesses get into hot water when their expenditures increase faster than their sales. Maintain a tight control on any discretionary expenses. Obviously raw materials ordered into a job are essential. But many other purchases are often unnecessary. Formalized purchasing practices within your shop can help reign in frivolous or wasteful spending. ☞ Don’t tie your cash up in excessive inventory. Sign shops don’t need a huge stockpile of raw materials to operate efficiently. Keep your stock of materials at a bare bones minimum. Periodically review your inventory with an eye for reducing it. As best, you can get in the practice of ordering into the job. Recognize that the value that your sign supply distributor provides is to supply you with the materials that you need, when you need them. ☞ Preserve your relationships and good standing with your sign supply distributors by paying them within the terms of sale. That way, when you are in a jam and need additional time to pay your bills, your distributors will be more likely to grant you an extension. ☞ Wait until the deadline to make your payments. While I recommend paying your distributor in a timely manner, that does not mean that you need to pay the bill before it’s due.Waiting until the deadline will improve your available cash. Until you build up your cash reserves, your shop will likely be in a vulnerable financial position. If your business is relatively young, you may need to take out additional loans. Just be aware that your interest rate will likely be less than desirable. If the rate is unpalatable, then you may resort to infusing your business with additional cash from your personal bank account.
Reimer explains that if you extend a customer a $10,000 credit line when your profit margin is 15 percent, you’re making a $10,000 investment in hopes of making $1,500 in 30 days. “If you don’t get paid or get paid late, you’re out of not only the profits but also the materials and expenses needed to make the sale,” he says. “Understand the risks and ensure that your return on investment is within your expectations.” Any time that you extend credit, the
follow-up with that customer is crucial. Send statements and communicate the importance of timely payments with your customers. “In many cases, customers will test your responsiveness to late payments to see how long they can stretch things out,” says Reimer. “Keep your customers current. Receivables at the 90-day ‘past due’ date only typically have a 60 to 65 percent chance of collection, which rapidly decreases as time advances.”
FINAL THOUGHTS ON EXTENDING CREDIT In the excitement of closing a big deal, it’s very easy for a sales person to extend credit, without giving the decision much thought. That big deal can result in a big mistake. “Making the sale isn’t always the best thing for your business if you don’t get paid,” says Tim Reimer, controller for Nekoosa Holdings, Inc. “Try and think of the ‘return on investment’ for every decision that you make which involves cash.” signshop.com
May 2014 // Sign Builder Illustrated
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