Keep Cash Flowing in Any Economy

At the mere mention of an economic downturn, all jewelers intensify their scrutiny of sales figures. A decline in sales, however, is not the only threat to a business’s financial well-being in a slowing economy. While it’s important to monitor sales, it’s equally important to keep a close watch on the delicate balance between accounts payable and accounts receivable. The moment accounts receivable begin to lag, this change must be counterbalanced in accounts payable to maintain healthy cash flow. Otherwise, this situation can quickly undermine a business’s financial standing—even when sales are strong.

Today’s economic climate brings with it a number of forces that can conspire to knock a business off its feet financially. Currently, for example, high gold prices are taking a toll on the industry because retailers are fearful of passing on the cost to consumers and creating sticker shock. Likewise, nearly every business is feeling the effect of increased oil and fuel prices, whether directly or indirectly. These and other factors add up to higher expenses as well as customers who pay more slowly. The net result: cash flow concerns. In fact, while 46 percent of business owners last year said they were experiencing cash flow issues, today, 56 percent say they have cash flow worries, according to American Express OPEN’s Small Business Monitor, a semiannual survey of business owners.

Regardless of where the economy may take us, the savviest business owners will not only watch sales but also shape up their practices in accounts payable and receivable. By keeping the following tips in mind, you can also optimize financial standing for a healthier business.

Offer a variety of payment options In a business like fine jewelry where high-ticket items are the norm, offering customers payment options is simply a fact of doing business. But make sure you’re offering the smartest options.

Next to cash, perhaps the easiest and most convenient option is to allow customers to use a variety of charge and credit cards. It’s difficult to beat them when it comes to maintaining healthy accounts receivable. No matter how long customers decide to take to pay off debt, you’ll receive cash quickly. Plus, you’re immune to the consequences of late payments or outright failure to pay. Customers often like this payment method because they can earn rewards points or accrue other benefits the card may offer. At American Express, we recently launched the Plum Card for those looking for universal trade terms.

At the opposite end of the spectrum is the practice of extending credit to customers yourself. While there is theoretical potential for a handsome profit, the risks are considerable if you finance the transactions yourself. The most extreme risk is never seeing payment. But even delayed payment can quickly upset cash flow. The jewelry business is challenging enough for most, so think twice about tackling the second trade of lender.

For the vast majority of jewelers, relying on a specialized partner who can finance customers’ purchases is the best route if customers don’t pay cash or use a credit or charge card. Although you’ll forfeit a percentage for the service, you’ll have cash up front and healthier cash flow without the hassle.

If you offer a layaway plan, make sure it’s working to your advantage. First, do your best to limit layaway plans to customers who either are not comfortable with credit or for whom credit is not an option. You’ll also want to set some rules to limit risks and boost advantages.

For example, set a reasonably high down payment on layaway items so that you receive more cash up front. You may also decide to restrict layaway to stock items in order to limit the risk of getting stuck with custom orders that are difficult to resell. If you do offer this option on custom items, demand a higher percentage up front. Also, set a maximum number of months an item can be on layaway to shorten the wait for full payment and to boost monthly payments. You also may want to put a cap on the maximum value of a layaway item or cap the total value of all items in your layaway plan. To your benefit, layaway merchandise is yours until fully paid for, so be sure to take advantage of this by using these pieces as display items to keep showcases full. This will help you limit the need to purchase new inventory in the interim.

Overhaul collections While your best line of defense is to make sure most purchasers provide cash up front, you also must keep on top of collections from customers who have bought on layaway or on credit that you’ve financed. Most small businesses can improve collections simply by attending to the basics. Take steps to keep all customer information up to date. By maintaining current telephone numbers and address information, you’ll speed collections work—whether reminding customers about upcoming layaway payments or sending notices of overdue payments—and reach customers promptly. Calls to out-of-service numbers or notices and reminders to old addresses will only add more time to the collection cycle, and that whittles away at cash reserves.

It’s also important to designate an individual who actively keeps an eye on accounts receivable. Hire or assign a reliable bookkeeper or accountant who works on a contract basis to handle accounts receivable functions. His or her job will be to approve credit (if applicable), monitor layaway plan activity, make collection calls, receive payments, and make deposits. By taking this step toward strong accounts receivable, you’ll take a major step toward stronger cash flow.

Get the most from your money Keeping the books balanced isn’t always easy, but once healthy accounts receivable are in the works, the second step is within sight. In short, once you’ve collected the cash you’re owed, hold on to it as long as possible.

One easy way to improve your cash situation through accounts payable practices is to take advantage of credit cards to delay payments, just as many of your customers do. In particular, cards that offer flexible terms are an effective way to keep cash flow healthy.

When you’ve worked out a strategy to delay payments as much as possible while still honoring your obligations, the last step is the ongoing effort of keeping costs down. Recurring costs are the real target to aim for. Do what you can to keep payroll as lean as possible. One solution to keep payroll costs down is to hire temporary help for seasonal peaks. Other recurring costs, such as inventory, need to be monitored closely. Given a slowing economy, make every effort to limit inventory without limiting opportunity. One tactic, for example, is to delay taking on inventory for peak seasons until as late as possible.

Maintaining the delicate balance between accounts payable and receivable isn’t necessarily easy, but with concerted effort and some commonsense strategies, your finances will soon be running like a fine watch. And with cash on hand and peace of mind, you can focus on new ways to take on whatever the economy may bring.