There is no point having a client who either doesn’t make you money or pays you too slowly. This advice applies across your entire client base, not just to the next new business deal.
Business relationships are dynamic and changes can easily affect profitability without you realising. Three simple steps to keep on top of profitability are:
- Frequent reviews of the actual profit generated from a sample or all of your clients and comparison with what you expected to have achieved
- Renegotiate terms with clients where the target profitability is not being achieved
- Terminate unprofitable relationships
These steps assume that you have a management accounting system that consistently measures client profitability and if you haven’t then you need to improve this area of your business as soon as you can. You should also consider the appointing someone to be the Gross Profit Officer.
Finally, take what you learn from this exercise and factor it in to your negotiations for new business.
Getting paid in good time
We have a number of blogs about credit management and the simple fact of commercial life is that businesses go bust through a lack of cash – even if they are profitable.
So put credit management and control at the very heart of your business and make sure you get paid in good time.
Credit management is a wide topic but a starting point would be these three ideas:
- Agree payment terms in writing before you start work
- Get sales and operational people, as well as your finance department, involved in credit control conversations with your clients
- Stop working with clients that haven’t paid you until they catch up
Business conditions remain challenging for all of us, but you can reduce some of the risks and make more time to concentrate on growth, if you can successfully improve client profitability and reduce the time it takes to get paid.
We regularly help businesses with profitability and credit management – resulting in more money in their bank accounts.
Can we help you? Please give me a call on 020 7125 0270.