Would you like to collect more cash in December?

As this year winds down to a close, business owners whose fiscal year is the same as the calendar year have a number of things to do in preparation for year-end close.  One of those things is to ensure that enough cash is collected from receivable customers during the month to keep cash flow positive.   So the question “Wanna collect more cash in December?” is a good one.  Read on. . .

Of course you do but December is typically the month in which cash collections from receivables are the lowest.  This puts added stress on business owners as they try to meet the cash needs of their companies without being seen as a “Scrooge” by their customers.  According to Jerry Mills, founder and CEO of B2B CFO®, the most common reasons that cash collections decrease in December are:

  • Accrual-based companies that are your customers like to show more cash on their balance sheet on December 31st and are sometimes reluctant to pay their bills in December.
  • The person who cuts your customer’s checks takes vacation and is not available to pay your invoice(s).
  • Illnesses, such as the common cold, cause payables people to be out on sick-leave.
  • Your company’s staff may be more interested in the holidays and vacations than in collecting cash from your customers.
  • Your customers may have their own cash collection problems that they pass on to your company.
  • The check signer may be on vacation.

Regardless of the situation, business owners can still take effective measures to improve cash flow in December.  “As a business owner, you can still sit down with the staff and create plans for cash collections,” says Mills. “The staff may need to be reminded that they need to focus on the company’s needs and be proactive in cash collections.”

Some possible strategies include:

  1. Set collection goals for your staff – Tell each person who is involved in the collection process exactly what you expect from them in terms of dollars collected this month.  Be positive, but firm about the goals.
  2. Set specific customer targets – Have your staff give you a detailed report of the cash they expect to collect from specific customers in order to achieve their collection goals.  Let your staff know why you are concerned about not meeting the goals.  Help  them understand the importance of collecting cash without hurting relationships with the customers.
  3. Daily reporting – Ask the staff to report to you (or to a key employee) the results of collection efforts each and every day of the month.  Any concerns about goals should be communicated to you daily.
  4. Internal scheduling – Schedule staff vacations during the month so that someone is available to collect cash every day the company is open during the month.  Make sure your receptionist knows who is available to take calls from customers who have questions about open invoices.
  5. Schedule your collection calls to coincide with your customers’ vacation schedules – Find out when the customers who owe you money will be closed and/or otherwise not available during the month. There is no sense in calling to collect money if your customer is closed or if their staff is on a vacation.
  6. Performance bonus – Consider giving a bonus to your staff if they meet or exceed their cash collection goals.  This is a win-win situation for both you and your staff and offers them the opportunity to make a little more money to cover their personal Christmas expenses while keeping your company flush.

Yes, December can be a challenging from a cash flow perspective and that is why cash collections are particularly critical.  Implementing one or more of the above ideas will help keep your businesses on track during the holidays which will get your new year off to a great start.

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