Much of what we do in a CNC shop should be aimed at maximizing profit so we can reinvest in the business, reward our people and ourselves. However, profit dollars are only useful when in hand, not just on the books. Because, if the cash isn’t continuously flowing into the business you can’t meet your obligations.
Even a shop that is well capitalized is at a disadvantage without good cash flow. Why tie up money or credit for day-to-day operations that can be better applied to growing or improving the business? So how do you help maintain healthy cash flow? Here are a few suggestions:
- Negotiate better payment terms. Rightfully so, customers demand a lot from a CNC shop beyond parts and products that meet their specifications. They also want competitive pricing, just in time deliveries, proof of product quality, flexible quantity orders and more. Therefore, the shop owner also has every right to negotiate better payment terms. Can you get a percentage of the cost up front? Is the customer willing to pay on delivery, or in a shorter timespan? What about progress payments? It can’t hurt to ask and, at the very least, you let the customer know you are serious about on-time payment.
- Invoice consistently. Issue invoices to a customer at the same time each billing period. For example, if you bill monthly, always do so on the same date. That way the customer comes to expect your regular invoice and you are more likely to get paid sooner. Likewise, find out on which days of the month your customer’s accounts payable department processes invoices. By timing your billings to coincide with the customer’s payment cycle, you can shorten the lag time between invoicing and collecting.
- Should you add a late fee? This can be a bit tricky, as you don’t want to offend your customer and some will even ignore and refuse to pay any late charges. Others, however, will pay promptly to avoid the late fees. It’s a judgement call based on how well you know the customer.
- Offer a discount for prompt payment. Some companies are happy to snatch up a small savings by paying sooner. It’s akin to the carrot versus the stick of late fees. Again, it’s a judgement call.
- Reduce expenses. Although we can be very good at improving productivity and reducing costs on the shop floor, we may have cash vampires in the back office. Do you overspend on office supplies? Are you paying monthly fees for subscriptions or services that you aren’t really using? Can you get a better deal on phones, Internet and other services? Any amount you save on unnecessary expenses means more cash on hand.
Every shop and its customers are different, so you need to decide which of these cash flow tactics will work for you.
When it comes to improving work flow, check in with your Torrance Haas Factory Outlet. Call (310) 381-0750, email: jphillips@haasfactoryoutlet.com, or visit www.haasfactoryoutlet.com.