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How To Increase Cash Availability
This article was previously published in Appraisal Today newsletter
in March, 1993 and was written by Ann
O'Rourke. For more information on the newsletter, go to Appraisal
Today Info. It is copyrighted. For reprint permission, Contact
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For all businesses, Cash Is King.
Every appraisal company, at one time or another, has problems with too little
cash. When there are lots of checks coming in we feel rich. When those checks
slow down, we worry about making payroll and other payments, and start thinking
about better managing our cash flows.
Where are your dollars? Dollars
flow through your business. When you bill out an order, they go into accounts
receivable, where they sit until paid. When the check is received, the dollars
sit until the check has cleared the bank. You want to get the cash inflows in
your checking account as soon as possible. On the other hand, you want to delay
any payments, or cash out-flows, so you can keep your cash as long as possible.
Time is money.
All businesses need to manage their cash flows
Just because few appraisal businesses have over
100 employees doesnít mean we canít use cash management techniques used by
much larger companies. The key is to start now to set up procedures for making
better use of your cash. Donít wait until youíre afraid you wonít be able
to pay your bills.
This article focuses on practical procedures to
move cash faster through your business. This is only the first step in cash
management. To really manage your cash well, you need to forecast and budget:
much more complicated and time consuming tasks. You have to analyze your
accounting statements, accounts receivables and payables, set up standards and
monitoring systems, and many other tasks. Further articles will discuss how to
When are cash flow problems most likely?
- When first starting a appraisal company,
youíre waiting for your first billings to be paid. You probably arenít
swamped with work from AAA clients that always pay very quickly.
- Periods of growth put substantial
strains on cash, as your bill payments increase before your cash receipts
can catch up. You have cash tied up in accounts receivable. Your financial
statements show youíre doing great, but you donít have any cash
- Volatility of workload is a problem in
all appraisal companies. Appraisal volume tends to be unpredictable, both in
residential and commercial appraisal companies. Labor costs are very high
for appraisal companies, and employees must be paid, or your business
will be shut down.
How well are you managing your cash?
- Do you finish and bill out your appraisals
before theyíre due (or past due)?
- Do you deposit checks as soon as possible?
- Do you use banking services, like
"sweep" accounts to earn interest?
- Do you make sure invoices are not paid
before they are due?
- Do you closely monitor and manage your
- Do you have a budget and forecast your cash
- Do you receive and use a monthly account
analysis from your bank?
Shorten the time between accepting an order and
- Increase the number of pre-pays or CODís,
especially with one-time clients and mortgage brokers. This will
substantially increase your available cash. The trade-off is losing some
assignments. If youíre really afraid to lose business, try asking for a
pre-pay or COD. If they seem reluctant, offer to bill them. But, be careful,
reluctant might be a sign of a dead beat.
- Complete and bill your appraisals as soon as
possible. Every day you delay is one less day of having the cash. You could
offer incentives to your associates. An invoice should accompany an
- Plan the workload on your support staff so
appraisals arenít tied up waiting to be processed. In residential
appraisal companiess, when appraisers are paid on completion of the work,
some appraisers tend to turn in appraisals right before the deadline for
payroll. Try changing their payroll deadlines. For commercial shops, monitor
your appraisersí expected completion dates to avoid an overload on support
- Process and assign new orders as quickly as
possible. One dayís delay in assigning is one less day of cash
- Encourage your residential clients to fax
their orders. It saves telephone tag, miscommunication, and time zone
Get paid faster after billing
- When youíre really busy, donít accept
assignments from slow-payers. Or, put them on COD. If theyíre really slow
paying, you should seriously consider not working for them and replacing
them with a faster paying client. Theyíre using your money until they
- Offer a discount if paid within 15 or 30 days.
Many companies and governmental agencies always take the discounts. This is
particularly useful with high commercial fees. Call the clientís accounts
payable department and ask if they have any policies on discounts. Be sure
your discount isnít too large. A 1% discount for a month is equivalent to
- Charge interest or late fees to discourage
late payment. Donít penalize your good customers and reward the deadbeats.
- Closely monitor accounts receivable aging.
This is particularly important for new or one-time clients. Also monitor
regular clients to see if their payment times are getting longer. It could
be a sign of financial difficulties.
- Always have payment terms on your
invoices -- when itís due and the charge for late payment. Smart accounts
payable personnel pay bills as late as possible. If thereís no due date on
an invoice, it goes to the bottom of the pile.
- Donít accept new appraisal orders from a
very past-due client. Although this seems obvious, itís surprising how
many appraisal companies complain about problems with collecting from a
client, but continue to accept new orders!
- Tighten up collections. Donít delay calling,
sending letters, or using small claims court. The longer you wait to take
action, the less likely youíll be paid, and the longer you wonít have
- Run a credit check before granting credit,
such as Dun & Bradstreet (800-234-3867). Or, check them out using www.knowx.com
. Ask the prospective client for references, and call them!
- Set a maximum a client can charge. Donít
shortchange your main clients.
Get faster cash availability from your receipts
- If you have a large number of checks coming
in, use a lockbox. The checks are sent directly to your bankís post office
box, and they process the checks. Contact your bank.
- Make a daily bank deposit. You or one of your
staff can do it during lunch or at the end of the business day.
- Obtain availability of 0 to 2 days on
deposited checks. Get your bankís "availability schedule". Donít
let your bank use the consumer availability of 1 to 5 days.
- Make your deposits before the deadline for
crediting, so you donít lose one dayís interest. Your bank may be open
until 5 PM, but only credit funds deposited before 2 PM.
- Be careful using the night depository or ATM.
They donít offer proof of what you deposited.
- If you use an ATM, be sure you make your
deposits before the deadline.
Use banking services to manage your cash
- Get a monthly "Account Analysis
Statement" from your bank. It is an invoice of your bank charges. Banks
prefer that you maintain a minimum balance and pay no fees, rather than pay
fees. See which is best for your company. See if your monthly balances
exceed your cash needs. Transfer the extra cash to a money market account.
- Set up an "Asset Management Account"
with your bank or a brokerage company. They may also be called managed cash
accounts or financial management accounts. Besides your checking and savings
accounts, they can include credit cards, mutual funds, and brokerage
accounts. They all have the "sweep", and an all-inclusive monthly
statement. The sweep feature is usually a daily sweep of cash (over a
minimum amount) into a money market (or similar) fund. Amounts below the
minimum are swept weekly.
Disburse your money slowly
- Pay invoices on the last day due, not before.
- Mail payments on Thursday or Friday, to take
advantage of the "float".
- Pay your appraisers after youíve been paid.
Labor costs are very high for a appraisal company. Delaying payments lets
you use your cash longer.
- Take discounts for early payment only when it
pays. For example, a .25% discount for paying a month early equals
(approximately) 3% per year. Itís probably better not to take the
discount, as you could invest the money and earn over 3%. On the other hand,
a 2% discount for one month early, equates to 24% per year!
- If cash is really tight, pay off some bills in
installments. Many vendors offer quarterly or monthly payment plans.
- Use business credit cards for travel and
miscellaneous expenses. You typically donít have to pay the bill until
about 45 days after the expenditure.
- Consolidate invoices from the same vendor into
a single payment.