Managing Your Cashflow

4. Sales and Marketing

4.1 Today's sales are tomorrow's cashflow, so your overall aim is to keep increasing sales and profitability.

• Increasing prices may reduce sales (and therefore cashflow) in the short term. But this can be outweighed by its major positive impact on profitability and cash generation over the longer term.

4.2 Even profitable companies can - and do - become insolvent through overtrading.

This happens when you have to pay the costs you incurred fulfilling an order before you receive payment from your customer.

• To avoid this risk, you may need to delay some orders and decline others. (See 3.2.)

4.3 When negotiating contracts with customers, make generating cashflow one of your primary objectives.

• You may be suprised at how easy it is to obtain deposits.
• Negotiate stage payments for contracts which will take time to complete. Include a timetable for the customer to pay invoices as part of this agreement.
• Agree a clear specification for the work to be completed, to minimise the chance of the customer disputing any invoices.

4.4 Improve your sales and profit margins by making sure all your work is invoiced for as soon as possible.

• Suppliers are often asked to perform beyond their original remit. It is reasonable to negotiate additional payments in these circumstances.

4.5 If you need to improve your cashflow temporarily, adjust your sales and marketing plans to suit.

• Bring forward sales by offering customers incentives to purchase quickly.
• Bring forward payments by offering customers incentives (eg discounts).
• Focus your marketing on short-term lead generation, rather than longer term objectives like brand recognition.

4.6 If you pay sales commission, link it to receipt of payment rather than receipt of order (see Incentive pay).

There is a double cashflow benefit:

• You delay payment of the commission.
• Your sales people will persuade your customers to pay promptly.