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ACCOUNTING

Need Cash?
 

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In a rough economy, controlling cash flow can make the difference between staying afloat and shutting down. In late 2006, cash flow at Beltmann Group, a moving company based in Roseville, Minnesota, was anything but under control. The company was on track to match its previous year's sales of about $100 million. But the housing market was tightening, and CEO Dann Battina knew he would need more cash in the bank if he wanted a cushion during the difficult times ahead.

And therein lay the rub: Beltmann's days sales outstanding -- the amount of time between the sale and the moment the check arrives -- was 61 days. So at any given time, $16.7 million was sitting in customers' pockets instead of Beltmann's bank account. The company had to borrow money to cover costs while waiting for checks to arrive. Only about 5 percent of customers paid upon delivery -- a number that's pretty standard in the moving industry, particularly for an outfit like Beltmann, which primarily serves corporate customers. The other customers all had to be invoiced -- and they often took their time paying up.

The most obvious way to boost cash flow is to change payment terms -- asking customers to pay in 30 days, say, instead of 45, and calling them frequently when checks are late. But that's not the only course of action, and in hard times it may do more harm than good. Battina worried that if he tried to force more customers to pay on delivery, they would just defect to a competitor. "I knew it was time to figure out how we could get our hands on more money before the situation became really extreme," Battina says.

He decided to focus on improving Beltmann's billing process. By getting invoices out just a little more quickly, he reasoned, he could cut his days sales outstanding and get more cash in the bank. He turned to Steve Kosel, his vice president of accounting, and Sue Gillman, a partner at the St. Paul -- based consulting firm Aveus. Starting in January 2007, Gillman and two other Aveus consultants spent two months analyzing Beltmann's cash flow. They visited branches to interview managers and employees. They pored over invoices and all the other documents that Beltmann collected for each customer. The consultants and Kosel cataloged the documents on a spreadsheet, listing every error.

A broken billing process

It wasn't a pretty picture. And it wasn't just the customers' fault. Beltmann was taking an average of 10 days to get an invoice out. Worse, Gillman estimated that the documents were handled incorrectly 40 percent of the time.

At Beltmann, 300 independent contractors perform the manual labor, then drop off paperwork at one of the company's 13 nationwide branches. Often, Gillman found, inventory sheets were missing, or the movers failed to get customers' signatures. Branch staff sometimes missed the errors the first time around, so the movers had to go back to customers to get the required signatures or forms. Though Battina and Kosel had heard that the contractors could be careless, they didn't learn the extent of the mistakes until Gillman conducted her analysis. "It was embarrassing how severe the problem was with these contractors," says Kosel.

And the problems didn't end there. After leaving the contractors' hands, the documents traveled through three departments. First they went to the operations staff at a branch office. Then they were passed on to administrative staff, who scanned them into the computer system. Sometimes, operations took a week to hand over the documents to the administrative staff, who wouldn't scan them for several more days. Finally, another department would download the forms, create an invoice, and send it out. If the paperwork was incomplete, the documents were returned to the branches, costing Beltmann precious days.

A deceptively simple fix

Gillman designed a quality control sheet that lists every piece of paper and signature needed to send out a bill. Now, contractors check off boxes for all of the necessary documents. The packet is reviewed when the movers arrive at branch offices, so errors can be fixed immediately. Everyone in the company uses the same sheet to ensure the paperwork is in order from one person to the next. Aveus also recommended that staff process the paperwork the same day instead of waiting for stacks to build up. Kosel, meanwhile, spent March, April, and May of last year visiting and speaking with offices about the importance of handling the documents without mistakes. He also set a goal of four days for each branch to scan the forms.

It wasn't easy to get workers to make an obscure accounting metric like days sales outstanding a priority. "Not every employee understands the big picture," Kosel says. As an incentive, he set up a page on the company's intranet where, every month, he lists the number of days each branch took to get its invoices out. By February 2008, the company had cut the time it takes to send an invoice to just six days, freeing up $1.1 million in cash, which Battina will use to cover bills and pay down loans. "Cash is important for any company," he says. "But given the down housing market, getting this extra money was especially instrumental to us right now."

For more on boosting cash flow, check out "How to Collect From Anyone," a story from the Inc. archives with 30 tips for getting paid within 30 days.

Last updated: May 1, 2008




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