Cash is still king, maybe more than ever.
Cash is still king. Yes, maybe now more than ever before. Sure, your written sales are through the roof, and your salespeople are almost giddy, bragging about their close rates. Then reality sets in when they realize they might not get paid on those sales for weeks or months, the time it takes to finally receive and deliver the products.
You may even feel flush with cash right now. Chances are, you have a higher level of customer deposits than you’ve ever held in the past. Therein lies the rub.
When you finally receive the merchandise you have sold, you will need to pay the vendor for it. You will need to pay the expense of inspecting, preparing and delivering it. Of course, you also need to pay your salespeople for selling it.
You may even feel you need to “do something extra” for the customer who waited so long for it. We caution against this – the supply chain disruption is not your fault. Anyone can go broke trying to be the “nice guy”.
The good news is you already have the cash. The bad news is you already have the cash. Delivering a $3,000 order is not going to net you $3,000, even without a deposit on-hand against that sale.
With a 50% deposit you might only net $200-300, depending on the sale’s margin, delivery costs, and commission structure. Keep in mind also that if the customer paid in full at the time of purchase, you could end up realizing a $1600 negative cash flow event at the time of receipt and delivery.
We recommend setting up an escrow account, separate from your regular cash account. You can fund this new account each day, or minimally at least a couple times a week, with a certain percentage of your cash inflows. This will allow you to have the cash on hand to “pay the piper.”
A simple way to do it, for a retailer who operates on a 45 – 50% gross margin, would be to put half of your cash inflows, regardless of source, into the “escrow “ account. Alternatively, you could put all of your customer deposits into that account. Then use that account to pay your merchandise invoices. That will at least reduce your potential A/P shocks significantly.
So manage your cash carefully, and literally don’t get caught short.
Need help navigating this? We specialize in making your business work for you. Contact us for details and a free consultation. 404-432-2137
