Bookkeeping Tips – 2 Tips Critical to Cash Management

1. Reconcile the bank statement.

Reconciling the bank statement is one of the more important things for a small business. Always know how much money you have. With the technology today you can go to your bank’s website and check your balance anytime you want. Business owners need to consider the balance shown by your bank only includes items that have cleared. It does not take into account deposits in transit or any outstanding checks. Most, if not all, accounting software has a bank reconciliation feature. Use it, use it every month! After you balance, review the outstanding items. Any deposits over 10 days should be investigated because you have less money than you think you do. Checks outstanding for over two months should also be investigated. Most businesses deposit checks as soon as they get them so a check outstanding over a month or two could indicate a problem.


2.       Connect and build a relationship with the accounting department.

90% of business is based upon relationships. Usually small business owners only deal with their assigned salesman, rep, purchasing department, project manager, or foreman. These are not the people collecting the money or paying the bills. It is extremely important to build a relationship with the accounting department for 2 main reasons; Getting set up on payment terms and collection timely payments.

a. Getting set up on terms

It is extremely important for cash flow purposes to be set up on terms. However, due to lack of payment history, this can be very difficult. You will need to constantly make an effort to get set up on terms. Every order that is place, ask. Ask about the requirements and be sure to complete any paperwork that is needed. Call and talk directly to the credit manager. If they have heard your voice and know your name and if you know theirs, you’re probably going to get treated a little different. And when you do get the chance, and they extend you credit terms, do what ever it takes to pay those bills on time. Credit terms are not given out easily, but they are integral to success; make them a priority for your business.

b. Collecting payment

Perhaps the biggest obstacle a new business owner faces is getting your customers to pay on time. Because most small business owners are multi tasking, paperwork gets pushed to the back burner. Invoices need to be sent out immediately, that is critical. Also make sure all the relevant information is on the invoice; your payment terms, invoice date, an invoice number and, make sure to get a purchase order number. I can’t tell you how many times companies I’ve worked with shipped out product only to be told “Oh sorry I guess that wasn’t an order yet”.   Requiring customers to give you a PO number requires a deliberate act on their part, to contact their decision makers and, insures they have the proper approval. I know, you want to make it as easy as possible for them to buy, but if it winds up coming back anyway you’re defeating the purpose.   Also, when have a PO number be sure it’s on the invoice, especially if you’re working with a new company. I can guarantee if their accounts payable gets an invoice, from a company they don’t recognize with no PO number, it’s going straight in the trash. They just got themselves 20 extra days, until you call looking for payment. Which brings up my last point, call and follow up, if your terms are 30 days call at 20 to be sure it’s on schedule. The Collection process is not fun, but it will bring cash in faster.

Cash management is probably the number one most important area for small businesses, and it does take time. If you can’t spend the time required consider hiring someone to do it. Bookkeeping services are very cost effective, and if they can speed the invoicing and collections process. That by itself would be well worth it.

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