Did you know that California ranked 69% above the national average for business failures?  If you’re a small business owner in the state of California, this percentage should alarm you.  While there are plenty of reasons that a business can fail, one of the most common causes is the mismanagement of cash flow.  Effectively managing your organization’s cash flow is an integral part of its financial success.  Essentially, without cash, the ability to operate business becomes very challenging.  So how do so many west coast businesses make the same mistakes over and over again?  Here are some of the most common areas of concern:

 

Ineffective Accounts Receivable Monitoring

Many businesses fail to manage their accounts receivable effectively.  Without effectively managing and tracking debt owed to your organization, you fall behind.

 

Granting Credit Without Due Diligence

If your business currently grants credit to consumers it is important to have strict credit requirements in place.  Many businesses grant credit to customers without assessing the risks involved.  As such, when customers do not pay in a timely fashion, businesses are left on the hook trying to track them down for payments.

 

Unnecessary Expenditures

With any business there are going to be expenses that must be paid.  However, many businesses overspend or spend unnecessarily on products or services that are not necessarily beneficial to the growth and development of the organization.

 

Poor Inventory Management

Another common issue with cash flow is ineffective inventory management practices.  Inaccurately forecasting sales could cause a business to buy more products than necessary.  An overflow of merchandise that didn’t sell means selling products at a discount which is a waste of money.

Cash Flow Problems: How a Collection Agency Can Help

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cash money flow by Thought Language, on Flickr.  This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 2.0 Generic License.

 

Solving Cash Flow Issues

There are plenty of things that you can do to solve your cash flow issues.  By implementing better credit management practices, your organization can decrease their chances of digging themselves into a financial hole.  Implementing better management and monitoring practices is great for preventative measures, but what do you do about the issues you currently face?

Some might suggest temporary fixes such as taking out a loan to cover expenses until you’ve recovered any money owed to you.  While loans can often be a temporary solution when you’re in dire straits, it does leave you on the hook for paying back the funds and interest within a predetermined amount of time.  A more effective solution might be to work with a collection agency to retrieve outstanding funds owed to your company.

 

How a Collector Can Help Your Business

You might be wondering why it’s beneficial to your business to enlist the services of a California debt collector or agency; however, when it comes to retrieving debts owed to your firm the road can be long and tough.  The right collector can make this process a lot simpler.  Here are some of the benefits to working with a collector or agency:

 

Knowledge of Consumer Collection Laws

The Los Angeles Collector site states that some of the most common mistakes in collecting debt are calling a debtor’s business, threatening to take their home, calling before or after acceptable hours, failing to provide proof of debt, and disclosing information to unauthorized parties.  All of these practices are punishable by law for thousands of dollars.  A collection agency on the other hand is aware of federal and local laws and can protect your business while collecting debts owed.

 

Experience and Technique

Let’s face it, your organization is not in the business of collecting debts.  Trial and error and the time spent on implementing collection practices can really weigh down on other areas of your business.  Collectors have the industry experience and collection techniques in place.  They know the tricks of the trade and have an increased chance at collecting what is owed to you.

 

Affordability

If you compare the outstanding debt your company is owed or the hefty fines you could face for improper collection procedures to the minimal costs of services from a collector or agency, you’ll find its well worth the investment.  Agencies will either charge a flat rate or a contingency fee (percentage of amount collected) which is a fraction of the expenses you’re dealing with presently.

Using a collector or agency allows you to focus on what you do best – run your business.  As funds are collected, this money can be added back to your business for use at your discretion.

 

Managing cash flow effectively is certainly a process that can take time.  However, by being proactive and learning proper management and monitoring practices can greatly reduce the risks your organization faces.  Also, for times when things seem to slip through the cracks, having a plan of action in place such as a collector to remedy the situation can keep your business operating even in times of difficulty.

Tom
 

Arnel Ariate is the webmaster of Money Soldiers.

Click Here to Leave a Comment Below 2 comments
Nick | Millionaires Giving Money - December 17, 2014

Very interesting post. I’ve have monies which are owed to me and the thought of hiring a debt collector never occurred. The tips are bang on, I run a small business and I use all these ideas to make sure I can survive and thrive in the long run. Credit management and vetting is really important and I pay a lot of attention to this. Great post.

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Amos - December 28, 2014

Business failures always comes with poor management, either of funds or for resources. One of the major reasons is mismanaging the cash flow. This puts the business at a high risk since it means almost all the corners of the business will be affected.

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