Blood circulation is the condition to the health of the body, isn’t it? Leakage, unless it is stopped rapidly, would make a person die.
Cash is a similar essence for enterprises. If it circulates, they become strong. Draining cash makes them struggle. This explains, why establishing efficient cash collection procedures is crucial for companies. If cash is available, they can easily finance operations, pay salaries, and invest in new business opportunities.
Asserting strong liquidity is key to profitable sales growth.
The most important source of cash is your company’s sales, thus customers buying and paying for your products and services. But “buying” doesn’t always mean paying at the same time. Most customers tend to ask for later payments; unless they are consumers, paying cash or by credit card. An estimated 70% of global sales are generated by business to business trade. These companies first pay, when they receive funds from their clients, as defined in their sales agreements; in 30, 60 120 or however many days.
When your customer’s liquidity bleeds because their markets shrink; or their clients struggle to pay, or their investments don’t return as expected; they will deliberately postpone payments to you.
Hence you as a supplier, are an apparent source for them to overcome their shortage of cash; you are dependent on them, consequently, you are easy to utilise as a creditor; and you providing additional financing doesn’t cost them much…
This is when your cash collection competencies kick in. Whatever issues your customer may have; a well-prepared team and efficient cash collection procedures will safeguard the liquidity of your company.