Sunday, September 24, 2017

These 7 Signals Could Indicate Your Customer has Cash Flow Issue.

Written by Govindraj Muthyalu CPA

Customers are the lifeblood of your business. They are what allow you to in turn pay your bills, so timeliness of payments is not only important but also crucial for  survival of your business. That being said it’s important for you to be aware of the standing of your customers so you can be sure to be paid on time, and the sooner you are aware of  the issues the better it is for your business. For example if you know a customer is having some cash flow issues it could sometimes be beneficial to give them some breathing room for paying an invoice, this might be counter intuitive but can also go a long way in gaining good will. At any rate it’s important to know if  your customers are having cash flow issues, but what you do with that information is up to you. Here are seven signals that may indicate a small business is having cash flow issues.

1. Late Payments

This is one of the biggest indicators that a business is having cash flow issues. As soon as payments start to come in late it may be that because they are holding those payments waiting for cash to come in to cover what they owe. If late payments continue, be sure to communicate with your customer as communication with most business issues is often the key to a good outcome.

2. Partial Payments

If you receive partial payment against an invoice, this is also a big indicator that your customer has cash flow problems. Sometimes a business when they are worried about meeting all their obligations will send only a partial payment instead of the entire payment due. This might be all they have at the moment. When this occurs it should be followed up immediately.

3. Poor Communication or Late Communication

If it’s difficult to get a hold of your customer or communicate with them, whether its email or the phone, it could be a sign that they are having issues with cash flow. If you are constantly chasing down your customer either to get them to pay or simply to talk to them they might be having issues paying their bills and therefore having cash flow issues.  Many people have a tendency to avoid taking  calls of vendors and not responding to  their mails if they are not in a position to pay.

4. Bounced or Returned Cheque

This is another huge sign. If a cheque is returned from the bank it must be acted on immediately and you need to have your customer cover all bank costs. It’s possible that simply it was a bookkeeping mistake but you shouldn’t presume so and should move quickly to collect on that account. A bounced cheque is bad for everyone involved.

5. Post Dated Cheque

If businesses are regularly issuing post dated cheques on the due date of invoices,  this certainly is a sign that they are having cash flow issues. While post dating is essentially paying an invoice late, some businesses feel that if they give the cheque to you by the invoice date then they have paid on time, even if the cheque can’t be cashed until a later date. This of course is absolutely untrue, the day the cheque can be cashed is the day the invoice is officially paid. A post dated cheque is worthless until the date of issue unless you have cheque discounting facility with banks.

6. Requests to Postpone Cheque Deposit

If businesses regularly request you to postpone depositing your cheques, it is a clear sign that they have cash flow issues.  Depending on your relationship with the businesses, it may sometimes be OK to accept their requests, but you must keep an eye on how punctual they pay their future invoices. 

7. Requests for Statement of Accounts / Invoices

If businesses request you to send statement of accounts  and / or invoices whenever you follow-up for payment, it may be a sign of a cash flow issue. Many customers resort to this  tactic to delay paying their invoices whenever they have cash flow issues.  If customers request you for statement of accounts and / or  copies of invoices, send them those documents, call  them immediately, confirm  that they have received the documents, and ask them for payment.

Just because you see one of these from a client isn’t a guarantee that they are having cash flow issues but it certainly is a sign and should be taken seriously. These red flags are good opportunities to follow up with the business and see if you can find out what the real issue is and if there is anything you can do to assure that you get paid on time and you keep your customer, hopefully for years to come.

About Govindraj Muthyalu:

Govindraj is a CPA and has more than 25 years of finance, accounting, and IT experience.  He has worked as a controller and a CFO of many multi-million dollar companies. He is a Gold Winner under the category "Executive of the Year - Computer Software" at International Business Awards 2016 held at Rome, Italy, and a Bronze Winner under the category "Executive of the Year - Cloud Computing / SaaS / Internet" at Golden Bridge Awards 2016 held at San Francisco.  He has lot of experience in designing systems / processes, and implementing ERP packages in various industries.  He is the CEO of Cashpundit Inc., a startup that he founded to help businesses manage their collections and cash flows.