Cash flow is the lifeblood of any business. As such, the process of collecting and managing cash is defined as “cash management”—and it is a critical component of a company’s overall financial health. While it may seem basic, many companies do not have this fundamental cash management strategy in place—or they do not revisit and revise their strategy on a regular basis.
 
Here are three tactical steps contractors can take to boost your cash flow.

1. Use Technology to Your Advantage

Remote deposit allows contractors to scan and transmit checks digitally, and requires only a mobile device or a check-scanning device a bank can provide. This speeds up deposit availability and eliminates transportation costs and time.
 
Automating payables process can reduce contractors’ accounts payable and payments process by up to 60%, protect them from fraud, improve control of managing invoices and save the finance/accounting team valuable time.

Use a lockbox service to reduce the time and expense of collecting payments through a fully imaged portal that provides online access to checks and remittance data. This automated processing helps reduce errors, improves productivity and makes it easier to reconcile by importing payment and invoice details into the system. Lockboxes allow accounts receivable and other incoming payments to be processed remotely. The bank handles everything, meaning the mail comes to a P.O. box, is picked up by a courier and then processed and deposited into the account.

Go paperless with an electronic collection system. Automated clearing house (ACH) lets contractors transfer money and collect and make electronic payments without checks, cash or a credit card network. Often used for direct deposit of employee wages, ACH also provides payments to vendors and other money movements, even on a same-day basis if needed.

2. Make Extended Payment Terms Work

For some industries, extending payment terms is not a new phenomenon. But with the financial challenges created by the coronavirus pandemic, extending payment terms is becoming more of the norm—and the impact is serious. Waiting longer for payments can strain operational costs, reduce investment in other areas of a business and make paying vendors more difficult.
 
To lengthen payables, don’t pay bills earlier than they are due. Automating payables allows contractors to make payments on their due date, not before. Conversely, incentivize customers to pay as quickly as possible. For example, some companies offer favorable pricing or a discount for paying in 15 days. A combination of these two strategies will help contractors’ cash position.
 
An efficient merchant payment processing program can also help improve cash flow, reduce operating costs and minimize fraud risk. Merchant processing allows contractors to accept payments from all major card brands, including cards stored in mobile wallets. If contractors already accept card payments, it may make sense to review the program for costs, fees and service levels.

3. Get Rid of Profit Busters

Regardless of how lean a contractor runs, every organization has profit busters that negatively impact their bottom line. Here are some of the most common—and what contractors can do to minimize their impact.

Operational inefficiencies are common. From employee onboarding to collection procedures to insourcing versus outsourcing, contractors must be sure they regularly review processes and procedures to eliminate waste. A great way to ensure this happens is to assemble an advisory team to help pinpoint opportunities. That team may consist of an accountant, banker, lawyer and other trusted advisors who can take a more objective, third-party look at operations.

With tax laws and your business situation changing regularly, be sure to review tax strategies at least yearly—but ideally twice a year. At the state and local levels, explore tax credit opportunities, including renewable energy and historic preservation.

Small and midsize businesses are particularly vulnerable to fraud because they are less likely to implement anti-fraud controls. Coronavirus-related programs and payments, in particular, brought out the fraudsters with new and creative tactics to make companies part with money. To help ensure contractors don’t fall victim to fraud, they should consider options such as ACH debit block and debit filters, dual authorization and payee positive pay, which matches the check number, dollar amount and payee on checks against a list of checks previously issued by the company. Companies often fall victim to business email compromises, so be especially vigilant about fraudsters compromising or mimicking emails associated with employees, vendors or clients, and using that email to request a fraudulent wire or ACH. In some cases, the fraudster will use an email address that closely resembles an employee or vendor email address.

Every client service organization has unprofitable—or less profitable—clients. Explore whether it is something the company can fix. For example, is the contractor simply overinvesting time? If the situation does not seem fixable, there are options, including firmly renegotiating terms, pricing them out or referring them to a more suitable partner.

In efforts to provide programs, seminars, tools and training, be sure to not burden the sales team. Best practices include focusing on behaviors and outcomes, not reports—eliminating redundancies like multiple versions of the same presentation, automating things like lead distribution and reporting, and creating a strong partnership with marketing. Looking for other ways to help your sales team be more efficient? Ask them!

There is no question that the time cost associated with employee turnover dings profitability. The time it takes to find, hire and train new staff may not be something contractors have factored into the profitability equation, but a study by the Society for Human Resource Management (SHRM) found that employers can spend the equivalent of six to nine months of an employee’s salary to find and train their replacement. On an upcoming hire, consider tracking actual time spent to help understand the true time-cost of turnover.

Avoid the temptation to cut marketing spend. Since marketing is the lifeblood of business development, focus instead on inefficient marketing that may be impacting the bottom line. The best way to ensure marketing efforts are paying off is to tie the tactics to lead generation. When marketing value is questioned, it is typically because the cost cannot be directly tied to the outcome. One caveat: marketing tactics that create awareness and goodwill are important, even if measuring their value is more complicated.