One fundamental strategy for good cash flow management is to collect receivables as quickly as possible. One major factor affecting cash flow in automobile sales is the status of contracts in transit (CITs). Any sale of a vehicle that involves financing, despite where the financing comes from, is essentially a CIT. Until the money is in our bank account, every vehicle sold is unpaid sheet metal sitting on the yard. Meanwhile, you have already paid the manufacturer for it, and are incurring costs storing it. Imagine selling hundreds of cars on a busy weekend; there is no profit until it is converted into cash.

Although banks, credit unions and financing arms of car manufacturers do pay back CITs as quickly as possible, not all customers do. This is especially true with corporate clients and fleet customers. As businesses, they too will delay payment of a CIT if possible, especially when mistakes are found in the paperwork, whether it is a missing signature or form. Unless the documentation is complete, the customer will not proceed to release payment.

Businesses small and large have common problems with cash management and cash flow, and the challenges of receiving and collecting of payments efficiently and quickly is universal. Automated systems that reduce paperwork and manual calculations when generating invoices and commissions accurately can help reduce the lead time significantly. A Group Business Manager that spends weeks consolidating commissions and F&I payments compared with another that does it instantly with a tool like Finance Accelerator can make a significant difference to their employer’s overall cash flow. Profit lost because of inefficient processes can be easily avoided.

Another strategy to maximise your current cash flow position is to enforce payment discipline to shorten receivable collection period. This includes implementing processes that call in accounts when possible after invoicing, especially if payments are not expected immediately or if the customer has not been in touch. Without risking relationships, send reminders to ask for payment and stay alert to signs of customers defaulting on payment. An errant account, if large enough, can wreak untold havoc on a small business.

Finally, get everyone on board and make it a priority. Make sure all your employees understand why it is important. Sales employees should not have just sales goal, they must understand the importance of being paid on time or in full. Institute a policy where, if a sale is cancelled, the commissions are withdrawn. Or give incentives when payment is collected in advance.

Conclusion

Managing cash flow is a daily battle for many businesses. Contracts must be collected on time just as customer accounts receivable need to be chased up all the time. It might be more difficult to identify problematic customer receivables than problem contracts, but in reality detailed and regular review of the accounts will make the process much easier. Effective processes must be in place for the identification of problems on receivables. Problems must be resolved quickly, preventing a small problem from turning into a big one.

Cash is the lifeblood of businesses. Without cash new stock cannot be bought, bills and salaries will remain unpaid. Sales and accounts receivable are all excellent things to have on a chart but until they are converted to cash, it is just good intentions.

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Craig Rowney
Craig leads our Performance Consulting division and has built a reputation for the development and delivery of innovative consulting and training solutions in the automotive and motorcycle industry at both OEM and retail level. Craig spent 7 years as the Director in charge of Consultancy at Deloitte Motor Industry Services and prior to this, 8 years in Sales and Marketing and Dealer Development with Mitsubishi Motors and Toyota Australia. This experience has been supplemented with a stint in retail allowing him to bring a unique perspective to consulting and training. Craig has worked with the majority of brands in Australia and many of the country’s largest Dealer groups and extensively in Asia.