Helping small businesses manage cash flow.

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Cash Flow Lessons from The Profit: Honest Foods Catering

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Cash Flow Lessons from The Profit: Flex Watches

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Cash Flow Lessons from The Profit: The Soup Market  https://cashflowsignals.com/cash-flow-lessons-from-the-profit-the-soup-market/

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Cash Flow Lessons from The Profit: DiLascia – California T-Shirts

The Profit TV show season is here and it airs on Tuesday nights, 10 pm on CNBC. I love this show! Every business owner should watch it.

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Cash Flow Lessons from The Profit: Farrell's Ice Cream Parlor

The Profit TV show season premiere aired last night. I love this show! Every business owner should watch it.

If you'd rather listen to the blog post, watch the video. The written blog post appears below the video.

The Facts

$17M in sales

5 locations

3 locations make a combined profit of $600K

2 locations lose money and bring total profit down to $250K

The 2 locations that are losing money burn almost 2/3 of the profit

No cash reserves

$1.9M in debt that includes bank loans, legal fees, store build-out loan, taxes and trade payables

Company run by two business partners where one partner has no knowledge of the finances

Owners said rent was too high

Owners opened several locations in a very short period of time

Marcus Lemonis concluded there was no cash or assets, and the only value in the business was its brand

Analysis

$250K profit out of $17M gross revenue is a 1.50% profit margin. In general, a healthy profit margin for a business is around 20% as this will provide profit-taking to the owners and cash to invest back into the business.

A business can survive on the cash that a 1.50% profit margin generates if there is no debt. However, there is not much cash for growth. Borrowing money for growth is not an option because cash will be used up in debt service.

Using profits from profitable locations to subsidize losing locations is almost always an emotional decision and not a business decision based on sound financial principles.

Lessons Learned

Be very cautious and conservative when you make rent and location decisions. You can't pivot on this business decision when you don't generate enough sales, because leases are long-term financial commitments. Rental leases are just like debt. The cash outflow is fixed, no matter what sales you are making.

If you are an owner of a business, you need to know the financial numbers. If you have a business partner who "handles the finances," you still need to know the financial numbers. If you are having cash flow or profit problems, ALL the owners need to know ALL the details ALL of the time. Hard times is when all owners need to be 100% plugged-in and taking 100% responsibility for the problems and solutions. Once the business gets back to having positive cash flow and profits, the non-finance owners can back off on knowing all the details. However, all owners should know key monthly numbers such as:

gross profit margins

labor cost

cost of materials

total cash entering and leaving bank account

gross revenue

key inventory item sales figures

final net profit number and profit margin

accounts receivable

accounts payable

Business growth is not the answer to cash flow and profit problems. More sales can be an answer, but not growth. Growth means increasing fixed costs and labor to generate more sales. If you have problems with "people, process and product," growth only exacerbates the problems. If you can manage more sales with the same infrastructure, this will help you stay alive long enough to fix the problems. Remember that more sales will not fix the people/process/product problems. Only you can fix these problems.

Debt itself is not bad. It's how people use it that's bad. Debt is a tightrope. Debt can get you to the other side, but if you don't know how to walk the line with debt, it will kill you. Most people misuse debt because

They are inexperienced in business debt and how it sucks up cash

They use debt as a band-aid while they remain in denial of the real business problems

Join me next Wednesday for more cash flow lessons as The Profit works with DiLascia, a t-shirt and apparel company.

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How To Take Back Control of Your Bank Account

Paying bounced check fees and never knowing what’s going to clear the bank account each day robs you of any cash flow management strategies you try to implement. If managing your business bank account feels like a game of Whack-A-Mole, use these tips take back control.

First some tough love: Before you can implement the tips below, the first thing you may need to change is the mindset that you are too busy or too important to manage your own bank account. If something in your business is out of control, it should immediately become your problem and responsibility. Once you get it back into control and set policies and procedures in place to keep it in control, you can once again delegate bank account management to your bookkeeper or office manager.

Start keeping a check register and update it daily. The format doesn’t matter. The fact that you update it daily is crucial. Ideas for a check register are

Accounting software such as QuickBooks

Notebook paper

Business check register or check stubs that come with your business checks

Excel or Google Sheets

Info you need to keep in the register

Date you wrote the check or date the transaction (automatic debits and deposits) will hit the account

Payee or customer name; if it's credit card receipts use "CC Deposits"

Amount of transaction

Running balance of account

Balance the bank statement each month.

If you have a bookkeeper familiar with your finances and banking, ask him or her for ideas on how to get things back on track. Oftentimes, employees close to the situation have a better understanding of issues.

Cancel as many automatic debits as possible such as utility payments, cell phone bills, insurance premiums, credit card payments, etc. Have these bills mailed to you and put them in your accounts payable system. You can add these automatic debits back to the account, one at a time, as you obtain more control of the bank account. You may also find that you prefer to minimize automatic debits as a policy moving forward.

Keep in mind that although automatic debits may save bill-paying time, they also serve to minimize your control of monies leaving the bank account.

If some payments must be on automatic debit, make a list of these payments including the amounts and the dates they debit the account. Then once per month, enter all of these automatic debits into your check register so you can plan for them.

Cancel overdraft protection where the bank agrees to cover your account when it’s overdrawn. These fees are often just as much, or more, than an NSF fee when the item is returned. This service also invites you to be less diligent.

If you have a savings account at the same bank that is used to cover overdrafts in your operating account, close the savings account and move it to another bank. You want to remove anything that invites you to not pay attention to the bank account balance.

Log into online banking every morning after the bank has posted yesterday’s transactions and today’s processing transactions. Usually this is around 6 am for most banks. This gives you the opportunity to cover any processing transactions that will overdraw your account. Most likely, you won’t be charged an overdraft fee if you cover processing transactions on the same day. You may have to get cash out of your savings account and deposit it to your operating account so you can get immediate credit.

Do not release any checks you write until you have entered them in your check register and see that you have enough funds to cover them.

Stop employees from using debit cards. Open up a credit card account if employees need to make purchases for the business.

Set up a separate bank account for payroll if you are struggling to fund it. Make weekly or daily transfers from your operating account to the payroll account so you have sufficient funds for pay day.

Get your hands out of the cookie jar. If you are raiding the operating bank account for personal funds, put yourself on a payment schedule or on payroll.

It is possible to get control of the bank account and eliminate overdrafts. Overdraft fees are an extremely expensive way to finance operations. You are better off getting a loan or putting expenses on a credit card. Take it one day at a time, and you can get back on track. You got this!

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Remember The Golden Rule When Managing Cash Flow

I’m sure you’ve seen cash flow advice that encourages you to speed up collecting from customers and paying your vendors late. This can be a strategy, but before you set forth and execute your company’s receivable and payable policies, remember that you operate both as a customer and as a vendor.

In my outsourced bookkeeping practice, I’ve seen several business owners criticize and disparage their customers for paying late, but they had no urgency or moral conviction about paying their vendors on time. One may argue it’s a Catch-22 dilemma, but most of the time, it’s just lack of awareness. What goes around, comes around. Remember that.

When dealing with your customers and your vendors, remember the Golden Rule when you find yourself in these situations.

Charging customers finance charges and late fees

Usually these fees are not material and do not add to your bottom line.

Charging your customers late fees makes you a punisher and seeks to control customers’ behavior by negative reinforcement.

See Why You Should Never Charge Customers Late Fees

Only accepting a payment from a customer if it’s for the full amount due

You may think this policy ensures you will be paid in full, but it can backfire and prevent you from being paid at all. Plus, it hurts your cash flow. Always be willing to accept partial payments from customers.

Threatening to report the past due account to a collection agency when you have no intention of doing so

Not only is this dishonest, it escalates the situation to a new level from the customer’s perspective while your leverage to get the client to pay has not changed. You have no intention of bringing in a debt collector, but you have completely changed the position the customer thinks she’s in with this threat.

This tactic serves to increase the disconnect between you and your customer. You rely somewhat on the moral code and empathy of your customer when it comes to paying you. When you threaten your customer, you may lose this leverage. When a person feels threatened, their moral code changes.

Refusing to discount the price if your customer has a complaint about the quality of product or service

Because some customers dishonestly use complaints to get away with paying less, you have to decide when to stand your ground and when to give in because you are in need of the cash.

If the customer truly believes she did not get the service/product she should have, consider giving her a discount. Even if she is mistaken, she is not trying to be dishonest. Providing the discount shows good faith and gets cash in your bank account.

Asking your vendor for a discount because you are a “small” company, or just starting your business or have a small budget

You have to decide what type of business person and vendor you want to be with regards to asking other businesses lower their prices for you. This "strategy" will usually backfire. Getting the lowest price is not always the best deal.  Most likely you’ll be labeled as “cheap” by your vendor and not given the best service. Your vendor may also lose respect for you as a business owner.

If you think the vendor’s price is not competitive, then tell him so. Then ask him what the value proposition is for you if you pay his price.

There are other ways to talk to your vendor about lowering a price if you truly cannot afford it. Tell the vendor what your budget is and ask how she can modify the product or service to meet your budget.

Pitting two vendors against each other to get a better price

This not a professional way to get a good price. It wastes everyone’s time and could easily burn bridges you may need to cross later.

Asking the vendor to provide free products or services and implying the vendor will receive marketing benefits by doing so

Keep in mind your vendor probably already has a marketing plan, and I bet it doesn’t include giving you free stuff!

Not returning your vendor’s emails or telephone calls when you owe her money

It doesn’t cost a dime to return an email or telephone call and have an honest conversation about the situation. It just takes empathy and courage. It’s embarrassing to not be able to pay your vendors, but it should be even more embarrassing to not have enough professionalism and strength to deal with the situation.

Following the Golden Rule helps you earn respect of your customers and vendors. Once they see you are a person of integrity, you more than likely will be on your customer's first-to-pay list and your vendor's preferred customer list. Being fair and honest is always the right thing to do. Always.

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Inventory Management Tips to Improve Cash Flow

Inefficient inventory purchasing and stocking can drain your cash flow. Make sure you are following these steps to ensure you aren’t needlessly locking up cash in your inventory.

Get an inventory management system. There are several easy and inexpensive systems available. If you don’t know what inventory you have on hand, you have no way of knowing what to order and what is not selling.

If you maintain “safety stock,” then analyze whether or not you use it, how often you use it, etc. You may be able to reduce the amount you keep in safety stock.

Stop making or buying items that don’t sell. It may be emotional for you to let it go, but it’s a waste of cash and it’s making you less profitable.[divider] Implement internal controls so you you don’t lose inventory to employee theft or damage due to employee carelessness. Keep in mind employee theft of inventory also happens at receiving.

Break down and report your inventory into three categories: safety stock, replenish stock, obsolete. Analyzing inventory this way helps you make smarter decisions about purchasing.

Develop a company policy to identify and liquidate obsolete stock and execute the action items every month or every quarter.

Think twice before taking a supplier up on a bulk-purchase discount. You may be getting your widgets at a discount, but you may be purchasing too many widgets. If you’re struggling with cash flow, bulk-purchasing is not the fix. Take advantage of bulk discounts once you get your cash flow under control.

If you let your supplier order and stock inventory for you, make sure you have a system in place to closely monitor their actions.

Use drop shipping whenever possible.

Finance your inventory, but implement a system that immediately pays off the debt when inventory is sold. For example, if you financed $5,000 worth of inventory and sold $1,000 of it in the first week, pay off that $1,000 on Monday.

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How Your Customer Billing Process Is Sabotaging Your Cash Flow

There is one question a business owner needs to ask herself every morning *

Not billing your customers in a timely manner is one of the biggest cash flow mistakes you can make. Read through the suggestions below to get your customer billing on track.

Problem - You work on your customer billing whenever you can find the time.

Solutions

Put customer billing work on your calendar, just like you would a meeting.

Do your customer billing at a time and place where there are no distractions.

On the days you schedule billing work, do it very early in the morning before your business opens and before you check your email and voicemail.

Problem - You procrastinate billing a particular customer because you know he’s unhappy about something.

Solutions

Ask an employee or partner to do the billing.

Discount the billing if you truly believe that’s the right thing to do.

Promise yourself a reward after you’ve completed the billing such as leaving the office early, spending time doing something you enjoy online such as social media or taking a day off.

Problem - Your billing needs to include time and materials, and it takes you hours to gather together this information.

Solutions

Put an accounting or tracking system in place to gather this information and delegate the tracking to an employee.

Delegate the billing to an employee and be involved only in the review. Have the employee also provide documentation of the time and materials for your review.

Consider hiring a part-time billing clerk to do customer billing.

Problem - You think you should bill your customers at the same time every month and the process takes 4-6 hours. When the day comes to bill customers, you just don’t have that time in your schedule.

Solutions

Consider hiring a part-time billing clerk to do customer billing.

Stagger the billing during the month and bill subsets of your customers weekly or twice a month. For example, bill ¼ of your customers each week.

Break the task down into smaller parts. If you bill customers at the end of the month, schedule time to work on it in the last week of the month, one hour at a time.

Problem - You only did a couple of hours of work and think the amount is too small to bill to your customer, so you hold the billing until you do more work.

Solutions

Reconsider this policy and bill your customer every month, at a minimum.

Realize if you have several of these situations going on at once, it could add up to a significant amount.

Realize it’s always worth your time to get your money.

Problem - You have already billed the customer for the job when she then asks you to do “just one more thing.” You know the extra request is outside the quoted job scope, but you’re too scared to ask to be compensated.

Solutions

Remind yourself of the value of your work and your time. If you don’t respect yourself, your customers won’t either.

When you bill for the previously completed project, put a statement in your billing that all work is completed and any additional requests will be billed.

Thank the customer for his business, be enthusiastic about the the request and without hesitation, let the customer know of the price for the additional work.

Problem - You hate paperwork. You’d rather just be out in the field doing what you love.

Solutions

Delegate the billing to an employee

Come back down to reality and understand you are a business owner, not an employee. And as a business owner, you wear many hats and have many roles. Doing some things you don’t like is the price of owning your business and calling the shots.

Find an online billing service, such as FreshBooks, and automate as much of the billing process as possible.

Problem - You don’t know why you put off billing customers.

Solutions

There’s something emotional going on, so talk to a trusted friend about it or get therapy. You cannot sustain a business with sporadic customer billing.

Ask a mentor or friend to hold you accountable for your customer billing and talk to them about the situation.

Just do it. Read through all the solutions in this blog post and put a system into place.

*Credit to Grant Cardone for this phrase.

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How You Can Go Out of Business While Still Making Profit

Cash flow has nothing to do with profit.

Making a profit is the most important job you have as a business owner. Working to make a profit when you don’t have available cash is like playing football without ever getting to play offense. Your only chance of a score, and small at that, is when your competitor makes an error. You’ll never win the game this way.

How can a business have profit but no cash flow? Unfortunately, it’s too easy to get into this position, and most of the time it’s because a business has

too much debt service (loan payments)

customers who do not pay on time or at all

Other reasons why a business may have profit but no cash in the bank are:

unexpected cash expense for equipment replacement

spoiled or damaged inventory

personal financial emergency

Below is an example of this happening to a business that sells products.

Here is your August Profit & Loss that shows a profit.

Sales on account (you bill the customer and they have 30 days to pay you)     $15,000

Less Cost of Goods Sold     ($4,500)

Less Overhead [payroll, rent, insurance, etc.]     ($7,000)

Equals Profit     $3,500

Here is what happened in your bank account.

Balance on 8/1/16     $1,000

Less rent paid on 8/1     ($2,000)

Plus bank deposits from customers paying their July invoices     $10,000

Less payroll 8/15/16     ($2,000)

Less other overhead expenses     ($1,000)

Less payroll 8/31     ($2,000)

Less loan repayment     ($1,500)

Less inventory purchase     ($3,000)

Equals overdrawn bank account     ($500)

There were three things above that drained your bank account but do not figure into August's profit:

You made $15K in sales in July, but only ⅔ of your customers paid on time.

Loan payment of $1,500 drains cash but it's not part of monthly operating expenses when calculating profit.

Inventory purchased that will be sold in September. Inventory is only expensed on a Profit & Loss when it's sold.

If you had collected all of your July sales on account in August, you would have $4,500 in the bank, all your bills paid and enough inventory to sell in September. Another way to avoid the bank overdraft would be to finance your inventory purchase and pay it off as soon as possible in September.

Managing cash is just as important as making sure you make a profit each month.

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How To Know if Your Employees Are Stealing Your Cash

Does this sound familiar?

You’ve delegated cash flow management and bookkeeping to an employee. When it’s time to pay bills, they show you the bills and available cash. There’s not enough cash to cover the bills. You don’t understand how this can be. You know your margins. You know your overhead. You don’t have any old receivables. You should have cash to pay bills. You conclude it must be your fault. If you could just increase sales, if you could just trim some overhead, if you could just learn to live on less, you would have enough money to pay bills every month.

If you are experiencing the above, there are two explanations: Someone is stealing your cash or you really don’t know the key numbers in your business.

The below steps may not catch all the ways employees could be stealing from you, but they should catch theft that is being done through your bank and credit card accounts.

Investigate Canceled Checks

You should have the bank mail to you bank statements with canceled check images sent to you in paper form. If you don’t, stop reading this blog post and call your bank to start the service. I rarely advise clients to retain a document in paper form, but your bank statements are one of the most important business documents you’ll ever have. If you have the bank statements and canceled check images in electronic, pdf form, that’s great. How reliable is the backup of your electronic files?

If you don’t have the above, go into online banking and view ALL the canceled check images for the past three months. View the payees and determine if 1) the payees make sense and 2) if the amounts and number of checks to these payees makes sense.

I’ve seen bookkeepers write checks to themselves, then enter the check in QuickBooks as being written to one of the business vendors. They choose a vendor that you normally write a lot of checks to and would not question if you saw it on a report.

I’ve also seen bookkeepers write a check to THEIR AmEx credit card or THEIR utility account. Because you have an AmEx and your utilities are with the same company, you don’t question the payee. Look at any account numbers written the memo or printed on the back of the check. Compare the amount of the checks with the amounts on your bills.

Investigate Petty Cash

If you have a petty cash box with receipts and logs, view these for accuracy and completeness.

Track the petty cash check images you find in your banking records with the petty cash log to make sure all checks cashed for "petty cash" are being recorded in the petty cash log.

Investigate Online Purchase Accounts

Log into online purchase accounts such as Amazon, Best Buy, Overstock, etc. and review purchases.

Go into your account settings and see what shipping addresses are set up. I’ve seen employees purchase items on employers’ accounts but ship the items to their homes.

Investigate Credit Card Charges

Review the last three months of all your credit card statements and go through each charge very carefully.

Hopefully you are requiring your bookkeeper and employees to save all receipts for purchases charged to your credit cards - including emailed receipts and paper receipts. Go through these receipts as well. You may think a line item on a credit card statement is a purchase for your business because the vendor is familiar. Viewing the receipt and seeing what was actually purchased is the only way to know if it was for your business or not.

Investigate Accounting Reports

Hopefully your bookkeeper is reconciling your bank account, in QuickBooks or another accounting program, and saves these reports. If you can get them, look at the uncleared checks section. If this doesn’t make sense to you or seems reasonable, it could mean the bookkeeper is using this to hide unexplained uses of cash.

If you deal with cash payments from customers, review the cash drawer close out reports against the cash deposits on the bank account. Make sure you have receipts for anything noted as "paid in cash."

Investigate the Employee’s Email Account

Log into your bookkeeper’s business email and review the following for the past three months

Personal emails - look for any discussions related to embezzling

Emails with vendors - look for any discussions related to collusion with a vendor

Purchase receipt emails - look for email confirmations of purchases that are not business related

Store or credit card emails - look for emails from companies that you do not use. Check to see if there are any accounts opened under your business name that you are not aware of.

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Beware of Over-Engineering Your Cash Flow Solution - It’s Not That Complicated

I’ve researched online resources to help you manage your cash flow, and I found 99% of the help out there makes it too complicated. For most of us, cash flow management for our businesses is not rocket science.

The danger of over-complicated cash flow management systems is that you won’t use them. You won’t use them because it takes too much time to input the numbers and/or it’s so accounting-centric it’s like working in a different language. In my 25 years of helping small businesses with accounting, I find that most of you are not “numbers people.” You are successful and brilliant at your trade, and you started a business so you could work with your passion, not crunch numbers. You generally don’t want to spend a lot of time in the weeds. You want an accurate view of the forest so you can make solid and quick decisions about operations and cash flow. When accountants and consultants attempt to help your business with cash flow, we need to produce usable information taking into account the user.

Most cash flow management videos on YouTube are nothing more than an Accounting 101 course on the traditional Cash Flow Statement. A Cash Flow Statement is not a tool, it’s static and reports old information. It may help answer the question of “Hey, where did my cash go," but generally it's only used by accounting nerds and banks.

In order to effectively manage and master your cash flow, you need tools to track what’s happening with cash on a weekly and daily basis. You also need tools that show you different cash flow positions based on different scenarios. You need to know if you can make payroll on Friday. You need to know if you can purchase a new piece of equipment for cash. You need to know if you should borrow money from your brother. You need real information for the real world.

Another shortcoming I see online is cash flow consultants offering a traditional Cash Flow Forecast Report as a cash management solution. A Cash Flow Forecast is only that - a forecast. It’s also cumbersome to complete and contains a lot of detailed information. What happens when things change three days into the forecast period? Who has time to update the entire Cash Flow Forecast Report every time something changes? You need a tool that is dynamic and that can predict ending cash flow in under a minute. You need to be able to change a few key numbers and see what’s going to happen to your cash.

The secret to successfully managing and leveraging cash flow is two fold: 1) stay engaged with what’s happening with your cash and 2) know what situations drain your cash and how to manage those situations. That’s it. Fancy reports and columns of numbers won’t help you. Tools and information that help you engage with your situation and provide action-based solutions are your best bet. These kinds of tools will allow you leverage your cash flow so you can grow your business and keep your profits in your bank account.

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Cash Flow Strategies for a Seasonal Business

Cash flow can be rough for seasonal businesses. I live in a college town (Gainesville, FL), and many of our restaurants receive most of their revenue during football season. Revenue drops further over the summer months when most students go home for break. If you have a seasonal business, these tips can help.

1 Develop and update each month a 12-month Cash Flow Forecast.

2 Keep a business savings account in a different bank than your operating bank account and deposit funds into savings during peak season. Then, per your Cash Flow Forecast, use those funds in off-season. Keeping your operating and savings accounts at different banks makes it harder to raid savings when it’s not in the plan.

3 Negotiate with your landlord to pay higher amounts during your peak-season and lower amounts during off-season. Using the example of a restaurant in my town of Gainesville, FL, the table on the left matches the annual rent amount with the percentage of sales the restaurant receives each month.

If your landlord won’t agree with this schedule, consider paying your rent ahead a few months during peak season.

4 Use a credit card or bank line of credit during off-season with a clear plan to pay it off in peak season.

5 Pay insurance policies in full during peak season.

6 If you have a fixed monthly payment for advertising or marketing, ask the vendor if they’ll take different amounts of payments as in the rent payment example.

7 If you rely on a manager to manage your store or restaurant and pay them a fixed salary, require them to work directly in operations in your slow months so you can have less operational employees on payroll.

8 In off-season, you probably have time to run the business and work in it as well, so do the work of one operational employee during off-season.

9 Close your business on certain days of the week or shorten your hours during off-season.

10 Use down time during off-season to improve your work flows and efficiency so you can minimize staff needed during peak season.

11 Survey your current services and determine if you can suspend or lessen them during off-season. For example, a sports bar may subscribe to a full cable TV channel suite during football season but can scale back to basic cable during off-season. Other examples are

Disconnect roll over phone lines

Have trash picked up less often

Lengthen time between janitorial service visits and have staff help keep store clean

Put off any non-urgent repairs and maintenance until a week before your peak season, then use cash from the peak season opening to pay these vendors.

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Why You Should Never Charge Customers Late Fees

In researching this subject, I found countless articles advising business owners to charge late fees and finance charges. While this seems logical, I can tell you from personal experience it does not work. In assisting past employers and clients with their bill payments for the last 25 years, almost all of them told me, “We don’t pay late fees,” and they never did.

I do have a caveat to the above. If you are in the business of collecting loan payments or rental payments, late fees do work. But if you are providing materials or services, charging late fees usually backfires on you. Here’s why.

1. Most customers won’t pay the fees, and you won’t enforce it. This makes you look weak and not in control.[divider]

2. Calling customers and asking them for a late fee when they’ve 1) brought you their business and 2) paid your bill, makes you appear miserly and petty.[divider]

3. Most of the time, it’s a bluff and your customer will call it.[divider]

4. You will probably never collect them as the amounts are not large enough to warrant legal action. You can sue over unpaid work and you may be awarded late fees as well, but it’s unlikely you’ll be able to sue to collect only late fees.

5. You most likely won’t fire the customer who pays your bill but not the late fees, and your customer knows this.

6. It’s punitive and negative reinforcement. People respond better to positive reinforcement.

7. The hidden message is that you are allowing your customer to pay late as long as they pay the late fee. If you are truly committed to managing cash flow, you will fire customers who consistently pay late.

8. It doesn’t help you get to the root of the problem of why your customer is paying late. Maybe there is something you can do, like staggering your billing during the month, to encourage the customer to pay on time.

9. Each state has laws about how much you can charge for late fees, so you may be in violation of the law if you haven’t researched it.

Charging late fees implies you are used to being paid late, so you have a policy for it. If it’s truly unacceptable for a customer to pay you late, you will put into place policies that reflect this and you will take the necessary actions to get paid on time.