Business owners need to keep a tab on what’s going on in their companies. They can peer over the shoulders of their employees (which isn’t always helpful and is usually called “micromanaging”) or they can keep their finger on the pulse of the business through regular reports. In this article, we’ll look at a few reports that business owners should have. These reports can be generated weekly or monthly, whatever is more helpful to the business owner.
Income statement: The income statement is a document that shows how much money has come in over a period of time from various sources (usually from customers) and what money has been paid out over the same period of time (which can include payroll, payments made to vendors and suppliers, rent, utilities, etc.). The bottom line number is the profitability of the company during the period.
Balance sheet: The balance sheet is a document that shows how much the company is worth, overall. It compares the company’s assets (things it owns) to its liabilities (things it owes) for a bottom line number that values the worth of the company. Most accounts receivables are usually considered assets (which may surprise some people) because that money is theoretically collectable and is close to cash-on-hand.
Cash flow statement: The cash flow statement is a document that shows the movement of money over a period of time. This might include payments coming in from various customers and payments going out to various vendors and suppliers.
Accounts receivables list: The accounts receivables document is a list of customers who owe money to the business. The accounts receivables list should be ordered by date, since newer transactions are more likely to be collected than older transactions. Older transactions can be identified and sent to a debt recovery specialist or collection agency to assist in collection.
Inventory list: The inventory document lists the cost and retail value of each item in inventory, along with how many of each kind of item and their ages. Ideally, businesses have very little inventory (high turnover), which helps to maintain a healthy cash flow.
While the first three reports are the most important financial reports, the other two financial reports (the accounts receivables list and the inventory list) are also critical to ensuring a business remains healthy.
Ranger Financial Services
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Recent news articles have highlighted a situation the United States Government is dealing with right now called “the debt ceiling” and many journalists are linking it to the debt crisis. But what is the debt ceiling and what how does it relate to the debt crisis?
Here’s how:
Many consumers know all too well the problems associated with acquiring too much debt, reaching credit limits, and spending without discretion. When these things happen, consumers find themselves in debt, owing a lot of interesting, in collections, and even potentially facing bankruptcy. This isn’t a surprise to anyone.
While this is the reality among individuals, the US government has discovered that it too is facing the same situation. The government borrows money, too, in the form of bonds and T-Bills. The government sells these, collects money, and spends that money on military and roads and pensions. When it collects taxes, it uses some of that tax money to pay back its “debt” on T-Bills and bonds.
Over the years, the government has spent a lot of money and the American economy was healthy enough that there was taxation and cash flow to handle this situation. (Sure, there was some debt but it was never a big deal). However, in recent years, the government has had to borrow a lot of money to help kickstart the American economy.
All that borrowing at the government level is no different than when a consumer gets a whole bunch of loans. At some point, the consumer will reach his or her credit limit – they simply cannot borrow any more. The debt ceiling is a Congress-imposed “credit limit” on the US government so that they cannot borrow any more money.
Along with exploring the possibility of spending less or raising taxes, the US government is increasing the amount of money it can borrow in order to pay for the various things that Americans have come to expect.
So, why does it matter to you? Just like consumers who increase the amount that they can borrow, increasing the debt ceiling isn’t necessarily a good thing. Increasing the debt ceiling means borrowing more… which means paying more interest. It might be an effective short term solution but in the long term, the US government may get a call from a collection agency expecting full repayment of debts!
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If you are trying to collect from your commercial customer, here are ten things you should avoid:
- Don’t let it get personal. All too often it is easy to become offended by the lack of payment. Keep it professional instead. You may want to sell to them again!
- Don’t sell too much more to the same customer. Although it might be in your interest to sell a little extra to them, don’t sell too much because you don’t want them too far in the hole.
- Don’t escalate right away. When debt happens – and it will – try to handle it yourself before going down the hall to talk to the CEO.
- Don’t hand off accounts receivables to sales people. Their time is an investment into growing revenue, not collecting money.
- Don’t NOT escalate an accounts receivalbe. Sometimes accounts receivables are too embarrassing to bother the executives with. However, a single call from a CEO could potentially get a payment released sooner.
- Don’t wait too long before starting the commercial debt recovery process. The longer you wait, the less likely you will collect the money on your own.
- Don’t send your best customers to collections. There are options that do not include the traditional collections agency. For example, diplomatic arbitration is a great way to preserve the customer relationship while still collecting money.
- Don’t do it all yourself. You can outsource some of your collection efforts to a collection agency in order to speed up the process and improve your ability to collect.
- Don’t give up. Accounts receivables should mostly be paid if you work at them diligently. Stick with them and you’ll collect most of them.
- Don’t forget. Some consistently slow payers will only pay just prior to needing your service again. If this happens twice, learn your lesson and demand payment up-front.
Commercial debt recovery doesn’t have to be challenging. Just remember these ten “don’ts” while you are collecting your B2B accounts receivables.
Ranger Financial Services
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Wondering how the economy works? A critical piece to the puzzle is the law of supply and demand. When supply is low and demand is high, the price is high. When supply is high and demand is low, the price is low.
Think of the entire economy like an auction. The auctioneer brings in one item that is in high demand and everyone wants it. There’s only one so people outbid each other until someone finally is willing to pay more than anyone else. Then the auctioneer brings out something else but tells people that there are several of this item. People bid much more casually, confident that they’ll get one. They don’t outbid someone else because they’ll try on the next one.
In the economy, it works the same: A lot of products are eaten up by higher demand (and supply will not be able to keep up with demand). But the price will reach a point where no one else is willing to pay and supply suddenly catches up to and surpasses demand. Soon, there is much more supply than anyone wants and demand wanes because anyone who wants the item can have it.
Demand falls. Prices fall. Soon, the product is so common, everyone can buy it for any price and no one needs it or wants it. But times change and the economy evolves and soon, demand will start to pick up again.
The law of supply and demand is simple but it’s profound and such a huge component of business. How your business handles supply to meet demand during economic fluctuations can make or break your business.
Create less than enough product to meet demand and start diminishing your supply when demand is really high. Although this seems counter-intuitive, it will put you in a better position than your competitors when demand drops. Likewise, during recessionary times, hold off on demand for a while but start producing slightly more in anticipation of growing demand.
By carefully studying and timing demand cycles, you can match your supply and create a stronger business.
Ranger Financial Services
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Businesses and consumers are asking this all-important question. They want to know if they will ever enjoy the level of economic robustness that they once enjoyed. Right now, though, everything seems uncertain.
That uncertainty, ironically, is what is feeding the lack of recovery. Here’s why: A healthy flow of money that makes a good economy: Someone spends money on groceries. The store owner gets paid, the employees get paid, the food producers get paid, the shippers get paid, the farmers get paid, and on it goes. Every dollar spent trickles down through many hands. People get the things they need and, in order to get those things, they exchange money for those goods and services.
But spending only comes with confidence. People who hang onto their money don’t put money into the economy and, as a result, it doesn’t trickle down to other people. Those people hang onto their money because they’re not sure when they are going to be paid and the money doesn’t trickle down from them to others. It’s a vicious cycle that can only be broken by… you guessed it… spending. Unfortunately, when people get jittery, they don’t want to spend their money.
Governments try to help out by adjusting the interest rates (making it easier to borrow – and spend – money). However, this isn’t always effective because when people don’t want to spend, they won’t. They’ll put their money under their mattress.
So, will economic recovery every come? The first thing that needs to happen is that consumers and businesses need to become more confident about the economic outlook. It’s a self-fulfilling prophecy. In order to do that, people need to master their debt, get access to well-priced goods, and feel like their jobs are secure.
If you want to do your patriotic duty to improve the economy, go out spend some money! But the only way to make it truly effective is to also convince your friends, family, and neighbors to do the same.
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While speaking to a crowded room of salespeople, a risk management expert asked the attendees what constituted good risk management. Everyone game him an answer from their own perspective – from re-counting cash handed to them to double-checking telephone numbers were entered properly. He asked every person in the room and no one answered in the way he was hoping. The real answer is “everything a sales person does is risk management.”
If you want to improve your commercial debt recovery, the best thing to do is qualify customers more effectively. And how do you qualify customers more effectively? Everything you do will help to qualify customers!
- Your casual conversation will provide clues that can help you know whether or not a b2b customer is going to be trustworthy.
- Your marketing efforts should clearly outline what constitutes a qualified customer.
- Your risk management guidelines should be apparent to all staff members and staff members should be monitored for adherence to the standards.
- Critical information should be double-checked for accuracy.
- Chain-of-command scenarios should be put in place for any situation that departs from the pre-established protocols of truly qualified customers.
- The prequalification process should occur earlier than it often does so that a trusting relationship isn’t built up for no reason.
- Salespeople’s commissions should be tied to collected money, not total sales.
- Get more information than you have been (but collect it over time so that you don’t injure the growing relationship).
- Build relationships throughout the organization.
- Confirm the customer’s payable process, not just their ability to pay.
- Make your accounts receivables process and commercial debt recovery process clear before invoice for new customers and on every invoice.
- Do background research on your customers before they become customers to see how they treat others.
This extensive pre-qualification process is rigorous but effective.
Ranger Financial Services
214-206-8060
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There are unfortunate, competing points of view in any business with more than a half a dozen employees. The sales and marketing people will want the deal at any cost. The manufacturing group will want to produce merchandise no matter what. And then there’s the accounting department who wants the sales and marketing and manufacturing people to be a little less aggressive.
For that reason, accounting departments and risk management departments have earned the reputation of “killjoys” in the business world. But they might be on to something. Consider this fictional example:
A business sells 50 $1,000 products to its B2B customers in a month for an income of $50,000 that month. There are costs associated with marketing the products, costs associated with selling the products, costs associated with manufacturing the products, and costs associated with delivering the products. In all, a profit margin might only be 5%, $50 per product or $2,500 for the month. Now imagine this: Imagine that 10% of customers don’t pay right away. The company has $5,000 in outstanding cash it is waiting for.
But let’s say that it collects from 49 customers but one customer turns into bad debt. They haven’t lost $50 profit. They’ve lost considerably more because they’ve lost the time, effort, and money they investing into marketing and selling and building and shipping the product that is not being paid. That was time that could have been invested into a faster-paying customer, which would have resulted in more cash flow and more profit.
The cost of a bad debt is high because other costs associated with that bad debt aren’t diminished. They still need to pay employees and marketing material and shippers. There isn’t a trickle-down effect.
How can you solve this? By taking an aggressive (but still professional) approach to bad debt and passing them off to a collections agency to take care of for you.
Ranger Financial Services
214-206-8060
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If your business works with B2B customers but only accepts payment up front with cash or credit cards (and no invoicing), you might think you are pulling ahead of your competition by ensuring cash flow. However, you should be aware of the one situation in which you might still have accounts receivables.
Credit cards have many fraud prevention measures and they usually work in the favor of the cardholder. Here’s how this rule can hurt your business: If a customer buys something and then calls up the company to reverse the charges, you will be lose that money from the credit card company. These are called “charge backs” and they are notoriously difficult to collect.
When that happens, you suddenly have a receivable where you didn’t think there could be one. You can fight back by proving that the person did indeed buy from you by producing a receipt.
Here’s how to reduce the possibility of credit card charge backs, which can result in accounts receivables for you.
If you work with businesses, make sure you ask for a business address and get the name of the buyer. That way, you can contact them at their place of business to tell them about the issue.
In face-to-face sales, make sure that the person using the credit card is the name that matches to the card itself. (This frequently trips up people who think they are authorized signers but do not have a card of their own… the credit card company may reject the receipt as proof of purchase if the signatures do not match).
If you do business under one name but your merchant account name isn’t clear, this can cause some confusion. For example, if you do business as “Office Furniture Superstore” but your merchant account has you as “Business Desk Company” then you might get more charge backs than others. Alert you customer with a reminder that they could see a different name on their credit card invoice.
Even if you don’t plan on accounts receivables, take these precautions to minimize them
Ranger Financial Services
214-206-8060
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In the electronics division of an office supply store: The computer salesperson was trying to close a deal with a customer, and the customer kept trying to grind down the price by saying: “I’m willing to pay cash today; can you do any better?” or “I’m going to pay cash, can you lower the price?”
This exposes one of the biggest fallacies in buying patterns, and it’s true whether we’re talking about business customers (as in the example above) or consumers. Customers still believe that paying cash for something is better. They’ve adopted the mistaken belief that the store cares how they are going to get paid and they believe that today’s cash is superior to an amount (minus fees) from a credit card company.
But that’s not the case. A store like the office supply store in the example above is not going to have a difficult time selling things and getting working capital to sell more things. The customer incorrectly believes that cash versus credit card gives them negotiating power.
In reality, cash only works if the purchase will be delayed or cancelled. “I’ll pay cash today” is a superior request if the alternative is a layaway plan. However, thanks to credit cards, there is no need for a layaway plan anymore. In the store’s mind, there IS going to be a purchase; cash or credit card are just two nearly equal payment methods (since the credit card transaction fee is negligible, given the volume of business they do).
The only time cash up-front is superior is for businesses whose customers might normally be invoiced later. In the case of many commercial clients, an invoicing agreement is the norm and cash up-front is a good way for businesses to get some cash flow.
If your business accepts cash and credit cards only from your business customers, then you may not have any accounts receivables. However, if your business accepts cash and credit cards but also gives the option of invoicing, you should consider an up-front discount for cash or credit card purchases.
Ranger Financial Services
214-206-8060
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In a lot of B2B businesses, the sales staff are the ones who have to collect the commercial debt from their clients. So they work hard to sell a product or service then have to work even harder to go back to the customer after and ask for the money. If your business is doing this, you should stop right away because it is costing you more money than you realize. Here’s why:
Most of the time, your sales staff are paid on commission for sales sold. If they also have to collect, they are not selling. Not only are they not making any money (which isn’t very satisfying for them), they are spending their sales time trying to collect on past commercial debt. That’s expensive! But it gets worse: Sales people are not trained debt collectors and so they have to play “good cop” (when selling) and “bad cop” (when collecting) and this could ruin a potentially good relationship with a client. Your sales staff are always going to be balancing their ability to collect on today’s debt with their ability to sell tomorrow’s product or service to the customer.
Businesses often get their sales people to collect because they have the best relationship with the commercial customer and because it compels sales people not to make deals that are obviously going to be a huge amount of collections work for them. But sales people should spend their time selling to be of the greatest benefit for you.
Here’s what your business should do instead: Put your sales team to work on sales 100% of the time. Hire an accounts receivable manager to take care of post-invoice commercial collections. And, outsource to a collections agency any aging receivable that you won’t easily see payment from in the near term.
For most businesses, this will save money: You’ll increase your sales (because your salespeople spend more time selling), you’ll collect more money (because your receivable staff can stay on top of the receivables and the collections agency can work on older debt). It’s the ideal solution!
Ranger Financial Services
214-206-8060
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