Tips That 80% of Businesses Don't Know

Tips That 80% of Businesses Don't Know

In order to avoid company failure, what is the most important thing to do? Give careful consideration to your response. How about this one? Rising number of clients or patients attended to? … Successful advertising?... Oh, the importance of location! … Improving the quality of service provided to customers or patients? … Being the greatest at what you do?

The solution isn't any of those things, even if they are all crucial to a company. If you want to keep your firm from going under, managing your working capital well is the first and foremost priority.

For the sake of clarity, let's say that your working capital is just your present assets minus your current liabilities. A good number here indicates that you have access to working money. This working capital can take the form of cash, receivables, or inventories.

Management of working cash is an important concern for expanding companies or healthcare practices. An expanding medical practice is a good case in point: The more patients you treat, the more money you'll spend, and the longer it will be before you hear back from health insurance companies about your claims. The money coming in is not nearly enough to cover the money going out right now. While this is doable in the short term while you settle up outstanding balances, the delay could create a major headache for your company in the long run.

You can put your assets to work for you and escape bank debt by using some working capital management tactics.

Method #1: Instant Payment

First, we'll examine accounts receivable, which stands out the most. When you aren't getting paid, what good are your receivables? Even if your profit margins appear great when you have a lot of orders, you have effectively borrowed money from all of your clients—at least until they decide to pay you. The suffering of this circumstance is well-known to doctors. Insurance companies are experts at dragging out the payment process because they know that their profit margins will increase as the time it takes to pay grows.

Is this merely the price that companies must pay? Okay, maybe not. An asset that Fortune 500 firms have relied on for decades—accounts receivable funding—is entirely unknown to 80% of small business owners, medical practitioners, and small hospitals.

As collateral for a conventional loan, accounts receivable are often valued at little more than half of their total worth by banks. The accounts receivable are valued at full value when funding accounts receivable is involved. On top of that, you can sell your accounts receivable for payment against the entire value, so you don't have to take on any debt for this funding.

Maybe you're anxious about selling your source of income. The good news is that you will often receive 80% of the whole invoice amount within a day or two, which is 28 to 118 days earlier than the norm. With this windfall, you can do things like pay for day-to-day operations, give bonuses to workers, buy merchandise at a discount, or invest in capital enhancements for your business.

After deducting the agreed-upon fee, which is often four or five percent of the invoiced amount, your funder will reimburse the remaining eighty percent as your invoices are paid. The 'expense' of the money shouldn't be your main concern. You can recoup your fees through investments in your firm if you handle those assets properly. Even if your regular company expenses don't change, you can finally relax because of the massive uptick in revenue.

Required Reading: The accounts receivable aging report should be reviewed. Keep track of how long it usually takes for one of your leading clients or insurance companies to reimburse you. Here are several ways your organization can spend the money if you expect to receive 80 percent of the invoice amount within 48 hours:Price reductions on stock (about in dollars).Investing in new machinery (with the hope of generating more revenue).Novel advertising campaign (expected to bring in more money).



The true value becomes readily apparent if you add up the extra cash flow that results from employing this tactic.

Method No. 2: Reduce the Time Between Operations

Your operational cycle begins the moment you withdraw funds from your account to commence work for a client and concludes the moment the client pays you. Take the example of a project that you finish on Tuesday but don't invoice until the following Friday—or even the end of the month—you wind up losing out on days of income. Cut down on the time it takes to invoice for services provided so that you may keep more money in your account, not only in profit margins.

Your typical time to invoice a client should be reviewed as homework. If it's going to be more than a week, ask your employees to cut it short. With this change, the payment time could be cut in half.

Third Approach: Recover Overdue Payments

Is there a high percentage of your invoices that are overdue? If that's the case, is anyone on staff working to reduce this timeline? Get in touch with the customers whose bills have been overdue for 30 days and ask them about it. If you can get 50% of your outstanding invoices paid a few of weeks early by devoting a few hours a week to this activity, it will be money well spent.

For instance, there are cases where healthcare industry delays are deliberately planned. Extending the time it takes to process payments increases expenses. There is no way out of this situation. Contacting an insurance company to inquire about a claim is not always an effective use of your time, as any doctor can attest.

Assignment: Evaluate your current methods of collecting payments and, if necessary, tighten them up. Delegate the task of collecting payment for overdue invoices to a single individual. The results of your collections efforts will vary depending on your clients' objectives, though. In order to increase your cash flow, you shouldn't rely on this alone.

Fourth Strategy: Maximize the Value of Existing Assets by Converting Them Into Cash

We all know that in order to be competitive, it is essential to stay up with the latest technological developments. To keep up with the times without breaking the bank on new gear every few years, leasing is a great option.

Is leasing equipment you already possess something you've thought about before? You can consider leasing the equipment back from a leasing business after selling it to them. You can earn some money for your company in this method. The leasing payments will naturally fall on you.

Gather all of your possessions and make a list. If you're short on funds, reach out to several leasing businesses and see if they'd be interested in buying equipment that you can then lease back. Another option is to hire a CCF to do the shopping for you. You won't have to worry about any hidden fees because they are independent consultants paid by leasing businesses.

Way #5: When Not Sure, Hire Someone Else

To cut down on salary and insurance expenses, consider outsourcing some of your company's support functions where you lack expertise. While the hourly rate for importing specialists will be higher, the savings from not having to pay for health or workers' compensation insurance more than make up for it.

Use the same level of care and attention to detail when hiring these specialists as you would when hiring an employee. It is common practice to hire specialized staffing agencies for this kind of work, thus it is important to conduct interviews with potential candidates. They need to be dependable just like any other employee you have because of how important they are to your team.

As a homework assignment, find local businesses that offer the staffing services you would need. You should weigh the expense of those contracts against the expense of maintaining payroll for these employees. Consultants can quickly rack up a hefty bill, so it's wise to include cost limitations (such as a weekly fixed charge or an hourly rate with a "not to exceed" clause) in your agreement. Make your expectations for their work, the people they report to, and what constitutes good performance crystal clear. Furthermore, any changes to the staff require your direct approval.

Step 6: Have What You Need on Hand When You Need It

The available cash flow decreases when inventory remains in the warehouse without being sold. Even while it can't be turned into cash right now, it shouldn't turn into a liability just because it's an asset. Many companies find themselves in problems due to over-ordering merchandise.

Stay aggressive and constantly review your inventory estimates. When you are short on resources, be aware of what you can do. Do not take any chances that are not absolutely necessary if you value timely order fulfillment to your customers. Avoid missing out on possible earnings by aggressively managing your inventory rather than hoarding it to avoid being caught off guard.

Assignment: Take a look at your inventory levels as well as your projections for the next several months. Is everything under control, or do you need to make some adjustments? Contact your suppliers via phone if you need to clarify their supply rules, negotiate better terms, or both.

Turn Your Working Capital Into Profit.

One of the most important things a company can do to avoid going under is to have a good working capital management system in place. Improving your company's return on assets is possible through the use of tactics including accounts receivable finance, outsourcing, and strategic inventory management. When that happens, your business will be prepared to weather any economic storms or expansions that may come its way.


Oh my goodness!

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