March '20

Issue link: https://nbm.uberflip.com/i/1212264

Contents of this Issue


Page 109 of 119

104 • RV PRO • March 2020 rv-pro.com • Discount for early payments (balance paid before a certain date, or yearly invoice vs. monthly) • Greater flexibility (for instance: a down-payment required to book a delivery date). Some customers are just late payers and need to be nudged. The way that dunning is handled can, however, greatly affect the collection process. Timing and the quality of message content are the two main factors in the success or failure of these prods. The manner in which the business gets paid not only affects its profitability but also its cash flow. Today, paper checks remain as the standard method of payment. However, paper checks are slow, highly susceptible to fraud and bear "hidden costs" such as additional work and back office processing. They are also inadequate for recurring invoicing. Something as simple as asking cus- tomers to switch to electronic funds transfer (EFT or ACH), providing incentives, etc., are among the tips that can be offered for faster, more secure, reliable and cheaper payments. Improving Cash Flow Profit doesn't equate to cash flow because, as mentioned, cash flow and profit are not the same. There are many factors that make up cash flow, such as inventory, taxes, expenses, accounts pay- ment and accounts receivable. The proper management of cash out- flows requires tracking and managing the operation's liabilities. Managing cash out- flows also means following one simple, but basic rule: Pay your bills on time – but never pay bills before they are due. Having a cash reserve can help any business survive the gaps in cash flow. Applying for a line of credit from the bank is one way to build that cash reserve. Once qualified, lenders will grant a predeter- mined credit limit that can be withdrawn from, when needed. Yet another option might be fru- gality. Aiming to keep the RV busi- ness lean, evaluate it. Is the purchase of new equipment really necessary? Is hiring new employees really cost-effec- tive? Weighing the pros and cons of all business needs and wants enables the business to retain cash flow and avoid unnecessary expenses. Cash Flow Gaps Remember, however, the cash-flow gap in most RV businesses represents only an outflow of cash that might not be covered by a cash-flow inflow for weeks, months or even years. Any business, large or small, can experience a cash flow gap – it doesn't necessarily mean the business is in financial trouble. In fact, some cash-flow gaps are cre- ated intentionally. That is, an RV busi- ness professional will sometimes pur- posefully spend more cash to achieve some other financial results. A busi- ness might, for example, purchase extra inventory to meet seasonal needs, to take advantage of a quantity or ear- ly-payment discount, or might spend extra cash to expand its business. Cash-flow gaps are often filled by external financing sources: revolving lines of credit, floorplan financing, and trade credit are just a few external financing options available to most RV businesses. Improving the invoicing process can be a key step in cash flow management, so employing strategies such as offering discounts for early payments and nudging late payers to settle their accounts, can be useful.

Articles in this issue

Links on this page

view archives of RV PRO - March '20