Changing the terms under which your customers pay their bills may be one of the most underappreciated cash-management strategies around. Yet a new receivables policy can improve almost any company's cash flow, especially in industries with traditionally high profit margins and long payment terms.
At Anvil Wild Manufacturing Co., a 15-year-old Denver furniture manufacturer, monthly carrying costs were eating away at the company's profitability. Part of the problem was tradition: In the furniture industry, retailers generally don't pay for their orders until 30 days after delivery of the merchandise. Anvil Wild instead decided to ask for 50% payment on order, and 50% within 30 days of delivery. To the company's surprise, none of its customers objected to the new policy.
Changing payment cycles clearly can't work in all cases. A construction subcontractor, for example, may have a hard time altering its receivables policy, because general contractors often don't get paid until the work is completed. "If your customers aren't paid," says one cash-management consultant, "you can't expect them to pay you."