Managing your payments to maximise profits
 When do you get your money from your customer? If you think that it is when they hit submit on the payment form the chances are you're not Aa active in managing your cash flow as you could be.
Allowing the customer to pay a subscription by direct debit, for example, has an inbuilt delay caused by a mix of the advance notice period you have give and the way you may be processing the payment.
Many companies batch direct debits, either collecting everything in one massive monthly cash injection or spreading them out as four blocks during the month. Either way it means customers have money that you are entitled to and could be earning interest on.
The same can be true of credit card processors. Some will transfer cash to you monthly, others as soon as the customer's payment is made.
Where the money goes is another consideration. Many companies simply deposit the cash in their current account, where it earns no interest. Yet managing cash flow so that Your money that isn't needed right now is put somewhere that interest is earned can add to your bottom line.
As an example, an insurance broker I worked with used to take the cheques and cash that clients paid with and put it straight into a high interest, 30 day notice savings account. He knew that it would earn a few extra pence per transaction in interest, which, across the entire span of his business added up to thousands of pounds of extra income per year.
The same philosophy can apply anywhere else. If you are using direct debit to collect payments from customers it may be better to process payment files daily rather than batch them up. PayPal payments would be better managed if the funds are moved into your interest bearing accounts daily instead of weekly or monthly. If there is any delay between you collecting the customer's money and paying a supplier that money should be in an account bearing interest and with enough flexibility for you to give notice of a withdrawal to cover your outgoings without penalty.
Collecting money from customers is a key operational decision usually thought of in terms of options available. Yet carefully considering how that option benefits your firm's cash flow can bring a significant benefit.
Previously on this blog...
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