Bill Pay: Making your cashflow work for you

Credit cards have become the default way for many companies to pay bills. For some transactions and purchases, this makes logical sense. Paying off the balance on time every month can work well for many of the service-based businesses we provide bookkeeping. Several have rewards, cash back, and travel rewards, so often, this is the way businesses process their bills. Software subscriptions, office supplies, and utilities usually get charged to company credit cards.

However, if you have a service-based industry that regularly receives vendor bills, you want to approach bill pay differently. There are several examples of industries that this would apply to. A cabinet-making business will regularly buy wood, lumber, finishing products & paints, and hardware in bulk before building the cabinets. A company that creates sculptures will purchase the materials in advance to make the sculpture. Consider a landscaper. They will buy fertilizer, stones, seeds, and much more to serve customers during their busy season. Roofing companies buy some materials in advance that apply to all roofs they are servicing. More examples would be HVAC, painters, and plumbers.

In each of these situations, time passes between ordering the supplies, receiving the supplies, working on the project, completing the project, and getting paid by the customer. The terms with the customer will look different with each service industry, but the terms from vendors often look similar.

The goal is to set up the timing correctly so that you, as a business, don’t run out of cash flow. That is essential. It will make or break a small business. I recently talked with a small business owner who experienced just that. Unfortunately, the owner didn’t realize this crucial timing principle. He ran out of cash and exceeded the budget because the project wasn’t forecasted correctly in all accounts.

Use the time allowed. If the vendor says it is due in 30 days or 45 days, schedule the payment to land on the 30^th or 45^th day.

Don’t overbuy. Plan, plan, and plan some more. Buying in bulk and buying in advance sets you up to maintain work and production, but overbuying will eat up the cash you desperately need.

Don’t burn your vendors. If you consistently miss deadlines and pay late, vendors will add charges and eventually cut you off. Paying on time matters and creates trust and rapport with all your vendors.

Charge for materials upfront. What upfront payments are necessary to ensure your final service or project wraps up with a healthy cash flow? Don’t underestimate taking a healthy down payment or deposit.

Stay organized. Creating processes and procedures to be timely with your quotes, orders, work, production, and final creation will make or break this cash flow timing. Your efficiency and productivity drives all of this and is most important.

Remember the small business owner I talked with about running out of cash? The story doesn’t end. The business owner got smart and turned things around. He hired a coach and an accounting firm (us) to help him reset and restart. This year, he is establishing processes and procedures for work orders and bill pay to ensure he won’t run out of money this time. It was a hard lesson to learn, but it was worth it. Second chances allow us to change and grow to apply the timing principle where it matters most.

We’d love to hear from you if you need help with cashflow timing and bill pay!