Month-End Billing and Planning Tactics
For a company in growth mode, month-end is an important time. Since you’re growing, there’s a good chance you’ll be sending out more and larger invoices than before. Even so, how you manage month-end will determine a lot about how successful your expansion will ultimately be.
The first order of business is to get your invoices out the door quickly. Unfortunately, a high-stakes period of rapid growth is when many companies discover their old system can’t keep up. Can you generate a quick, accurate invoice at any time or just at the end of the month? Jory Lamb, President of VistaVu Solutions, believes flexibility matters.
“If you did some work on the first day of the month, and you close the books on the last day of the month,” he says, “and then it takes you 30 days to get an invoice sent out, it could be four to six months between when you did the work and when you finally receive payment.”
When a company is growing, with increased payroll and equipment costs, a long payment cycle can be deadly. This could be the time to provide your customers with the right incentive to pay sooner. Consider offering a 2% discount for payment within 10 days or going to electronic billing to speed things up.
Even when all the invoices are done, your month-end process isn’t. That’s according to
David Tadman, a Partner at Stawowski McGill & Partners, a financial-based business consulting firm based in Calgary, Alberta. He advocates a rigorous month-end cash flow planning process, involving a company’s ownership as well as management.
Under this process, the company’s accounts receivables are scrutinized for signs of future problems. If the company has debt, communication with the lender is part of month-end. Is the company achieving its targeted Gross Margin? Tadman believes oilfield service companies should target a Gross Margin of 30% to 40%. Finally, the company should stress-test the business based on a 10%, 20% and 30% sales drop. To Tadman, these are planning tools every growth-minded company should be using.
“Your cash flow plan should be a constantly evolving document that answers one very important question,” he says. “That is, what do we know now that we didn’t know a month ago?”
