Wednesday, June 16, 2010

Find Cash in Your Sales Operations

To find additional cash flow for your small business, look at your sales. That may seem obvious but I don't mean your actual sales. I mean your sales process. If you are looking for ways to pull more cash out of your operations, consider doing the following:

  • If you use salespeople, make sure their commission structure is properly set up. First, you should only pay salespeople their commissions once payment has come in. So salespeople, who have the relationship with your customers and are sometimes loathe to jeopardize this by pursuing collections, are motivated to follow up with their customers to ensure payment was made. For example, if the customer has terms to pay in 15 days, state that commissions will be paid on the 20th or 25th day and ONLY if the customer paid.

  • Second, you should either set maximum discount rates or make sure that commissions are tied to the gross margin on the product or service sold. If you tie commission to gross revenues, you could end up only breaking even or worse, losing money, on each sale. By basing commission on gross margins or, even better, having a sliding scale with a higher commission paid for higher gross margins, you ensure you make money with each sale.

  • There should be a time limit on the customer payment. If the customer hasn’t paid within 90 days, the commission should be voided. Pursuing collection of unpaid invoices costs your customer money. You should not pay for your salesperson’s judgment errors. If the customer doesn’t pay, you don’t pay the commission, thus saving your cash.

  • If you pay salespeople a base salary and a commission but the business has dropped off and you must reduce sales staff, you can utilize manufacturer representatives to sell your product in the interim if your company is a distributor or manufacturer. Most manufacturer representatives work solely on commissions. When business picks up, you may still wish to continue use of these representatives to broaden your geographic reach.

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mercy said...
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