Keeping your Cash in Check

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When it comes to the electrical trade, cash flow reigns supreme.

In the electrical industry, it's not just about keeping the lights on, but also keeping your business financially sound.

Forget the saying, Cash is King. When it comes to the electrical trade, cash flow reigns supreme and managing it, especially during slower months around this time of year, is of paramount importance. Whether you're tackling small residential projects or large-scale commercial endeavours, understanding and mastering cash flow management are critical to your success.

The importance of robust credit control cannot be overstated, especially in times of economic uncertainty. With customers cutting back on expenditures and businesses navigating through financial hardships, it's far from guaranteed that your invoices will be paid promptly. So, how can you ensure your electrical business maintains a healthy cash flow?
  

Here are ten practical tips tailored specifically for you...

# 1. Keeping a healthy revenue stream
You shouldn't have to carry the financial burden of holding stock for too long. When purchasing materials, consider invoicing for those products as soon as they're purchased, preferably before they're installed.

Remember to purchase quality products from reputable brands to limit warranty-based work occurring. When a progress claim is due make sure it is requested on time and in-full in accordance with agreements to avoid delayed payment.

# 2. Secure payments up front
When quoting a job, think about requesting a percentage of the payment up front to secure the project. Whether it's 25 percent or a more ambitious 50 percent, adopting a "pay before you receive" approach is a wise move in the electrical trade.

# 3. Facilitate payment
Regardless of when you choose to invoice (in advance, midway through a project or upon completion), make it as easy as possible for clients to settle their bills. Whilst bank transfers are standard, offering other gateway payment options can be convenient for your clients, even if they come with additional charges.

# 4. Timely invoicing
If you opt to invoice at the end of a project, ensure you do so promptly. Delaying the invoice for weeks or months can lead clients to believe that you are not in a hurry to receive payment. Online job management software such as Fergus can help streamline job management process including invoicing from quote with appropriate labour and materials to enhance efficiencies and control.

# 5. Clear payment terms
Establish crystal-clear payment terms. Not every client needs a standard 30-day payment window. If the electrical work is completed or electrical goods are delivered, payment upon receipt is entirely reasonable and understandable.

# 6. Strict terms and conditions
In addition to precise payment terms, outline the consequences of noncompliance. It's entirely reasonable to impose a penalty fee for invoices that are seven days past due. The need for outlining legal terms and conditions in your contract is increasing for protection, compliance and retention of title. Use this as a tool to protect your business. There are other avenues to seek guidance in this area such as the Security of Payment Act.

For information visit: www.vba.vic.gov.au/building/security-of-payment

# 7. Express gratitude
Employ accounting software to set up an auto response email to thank clients for their payments. This professional courtesy can leave a positive impression at the end of the transaction.

# 8. Utilise a 'fake' bookkeeper
If you don't have a dedicated bookkeeper, create a pseudonymous bookkeeper with a separate email account. Send invoices and follow-ups from this account to maintain a professional image and preserve client relationships.

# 9. Communication matters
If a payment is overdue, have a direct conversation with the client. The electrical trade industry is best known for resolving issues through personal communication. However, if a customer states that they cannot afford to pay, it's not your responsibility to solve their financial problems. Offering payment plans and continuous chasing can harm your cash flow and consume valuable time. It is recommended to communicate clear payment terms up front or secure interest charges to protect cash flow.

# 10. Debt collection as a last resort
When an invoice is significantly overdue (usually after 45 days or as per your discretion), consider involving a debt collection agency. Taking decisive action early increases the chances of recovering unpaid dues.

By implementing these ten strategies, you can navigate the financial currents unique to the electrical business, fortifying your enterprise against its specific challenges and ensuring a path to enduring success.

"Cash is the oxygen of corporate life. Without it, operations cease as we cannot purchase new inventory to generate future sales." - Group Credit Manager, Vaios Kortikis