A tree care business can adopt incentive strategies to be paid faster. A business enjoying a 10% gross margin that offers a 2% rebate in exchange for early payments might not be appropriate. Giving away small extras, on the other hand, might work. Incentives might include the following:
• Small additional services• Discount for early payments (balance paid before a certain date or yearly invoice vs. monthly)• Greater flexibility (for instance, down payment required to book a project’s starting 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 tree care business gets paid not only affects its profitability but also its cash flow. Today, paper checks remain the standard method of payment for many. 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 customers to switch to electronic funds transfer (EFT) or automated clearing house (ACH), providing incentives, etc., are among the tips that can be offered for faster, more secure, reliable, and cheaper payments.
Improving cash flowProfit doesn’t equate to cash flow because, as mentioned, cash flow and profit are not the same. There are many factors that makeup cash flow, such as salaries, taxes, expenses, accounts payable, and accounts receivable.
That is, a business owner or manager will sometimes purposefully spend more cash to achieve some other financial results
The proper management of cash outflows requires tracking and managing the operation’s liabilities. Managing cash outflows also means following one simple but basic rule: Pay your bills on time – but never pay bills before they are due.
Cash-flow loansCash-flow-based loans rely on the value of the tree care operation’s cash flow
Having a cash reserve can help any tree care 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 predetermined credit limit that can be borrowed against when needed.
Yet another option might be frugality. With the aim of keeping the tree care operation lean, evaluate it. Is get redirected here the purchase of new equipment really necessary? Is hiring new employees really cost-effective? Weighing the pros and cons of all business needs and wants enables the business to retain cash flow and avoid unnecessary expenses.
Cash-flow gapsRemember, however, the cash-flow gap in most businesses represents only an outflow of cash that might not be covered by a cash 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 created intentionally. A business might, for example, hire extra workers to meet seasonal needs or take advantage of a quantity or early payment discount, or it might spend extra cash to expand its business.
Cash-flow gaps often are filled by external financing sources; revolving lines of credit, bank loans, and trade credit are just a few external financing options available to most tree care professionals.
If the operation has a strong cash-flow stream, it can be used to get significant loan amounts even if there are few business assets. Although cash-flow loans can be expensive, they play a key roll in a business that is expanding.