Up until last year, a photographer's biggest concern was managing to keep up with all the work coming in! Poor cash flow management practices were disguised with income from a constant stream of new sales.
Now with sales on the decline either because of a reduction in the number of orders coming in and/or having to make a price reduction, managing your business cash flow it more critical than ever.
Photographers need to manage each of the 3 elements of their cash flow;
- Money in the Bank
- Money owed to you
- Money you owe
Money in the Bank
- If you haven't already, get internet banking. You need to know how much you have in the bank today not last week or last month.
- Don't ever exceed your bank overdraft facility. If it looks like you might need to then talk to your bank manager in advance and ask for a temporary increase. That way you won't incur the banks hefty penalty interest charges or have a payment returned to a supplier marked 'refer to drawer'.
- Try to get your bank account into the black (not overdrawn) for 30 days in the year. Bank's in Ireland expect you to and although they will allow you be overdrawn for 365 days in the year, they will charge penalties if you do.
Money You Owe
- Make sure that you get credit from all of your suppliers. If they won't and you can't get the service or product elsewhere, then pay by credit card.
- Negotiate payment terms. Standard payment terms are just that, they can be negotiated. Your supplier's sales representative wants the sale so negotiate with them!
- Time your orders for the beginning of the month to get maximum credit, avoid ordering in the last week of the month.
- Don't bulk order just to get a 'special offer price'. Remember you need to have sold the item by the time you need to pay your supplier.
Money Owed to You
- Check that your customer can and will pay within your terms before you supply on credit to them.
- Your payment terms should reflect the risk associated with an account i.e. cash on delivery for high risk accounts.
- Send timely invoices with your payment terms included and send monthly statements
- Phone for payment don't just send letters.
- Keep written notes on the conversation and progress each call.
- Pass on delinquent accounts. 3 strikes and they're out!
In order to manage your cash flow properly, you need to stay on top of your paperwork, don't let it pile up. If you do that and follow the tips above, you can then plan your payments and keep your overdraft to a minimum.