How to Get Paid, on Time
andEvery Time
Robert Ashton is a social entrepre-
neur, business author, and campaigner.
He works independently, which en-
ables him to challenge bureaucracy
and champion common sense. He
converts confusing conundrums into
simple solutions and is a popular con-
ference speaker, who inevitably speaks
his mind!
He started his career with a large mul-
tinational, moved to a small family
firm, and then started a succession of
small businesses from 1990. He is also
a Charity Patron and Trustee.
Ashton_EI_163338.indd 1
Robert Ashton
Money doesnt talk, it swears!
Bob Dylan
Abstract: Cash is the life-blood of any organization. Its no
good being profitable unless youre getting paid, on time
and in full. Yet human nature is to focus on winning new
orders, and not worry about managing cash flow.
The simple fact is that if your customers pay late, you
need more money in your business to keep it working.
That can mean borrowing more from the bank, or more
likely in a small business, not getting paid yourself.
This article can help you improve your cash flow.
Learn how to build prompt payment into each deal you
do. Consider how pre-payment can help you, and may
not cost your customer anything. Explore risk, and how
setting credit limits can protect you from bad debt.
Finally, pick up some proven techniques for chasing
overdue payments. Its something we all need to know
how to do effectively.
Key words: cashflow, debt, credit, payment, getting paid,
pricing
Whatever career path you take and whatever your or-
ganization does, there will come a time when cash flow
becomes the most important thing in your life. You see,
cash flow is to any organization what blood flow is to you
and me. Its what keeps the organization alive.
But human nature being what it is, many of us find it
hard to talk about money. We talk at length about the prod-
uct or service were providing. We get very specific when
discussing delivery schedules. But talking in detail about
the price and when we will get paid often feels difficult.
This short article will help you:
Understand why cash flow is so important.
Structure deals so that payment terms are explicit.
Expert Insights 2016 1
29/11/16 6:05 PM
 How to Get Paid, on Time andEvery Time
Chase overdue invoices, because whatever
you do, some people will always pay late!
Why Is Cash Flow so Important?
Lets develop the idea that your companys
cash flow is its life blood. How can this anal-
ogy remind us of those business basics we
may be in danger of overlooking?
Think of your company as a living, breath-
ing person. It has to eat to live, and the food
that companies eat is called sales. Just as an
empty stomach rumbles and feels uncomfort-
able, so too does a business with an empty
order book rumble with discontentment. No
sales means no a ctivity. It means twiddling
thumbs and perhaps m achinery standing idle.
Of course, there are some benefits to business
hunger. Just as a starving man rarely visits the
toilet, so too does the hungry business find
it has no by-products to dispose of. Energy
consumption falls too, but as you can imag-
ine, a company without sales inevitably dies.
Now what keeps the company running is
money. It funds the payroll, so everyone gets
paid for their work. It pays the bills that keep
the company running, buys raw materials,
fuel for delivery trucks, and everything else
you can think of.
If costs are not controlled properly, the busi-
ness can hemorrhage cash in just the same
way you or I will bleed if we gash our leg.
Our instinct is to stem the flow and help the
wound to heal. With companies, ahemorrhage
can be harder to spot, but just as dangerous.
Familiarity can lead us not to notice inef-
ficiencies as they grow. Think of this as an
ulcer in your gut, leaking blood, but not in
away you can notice. You just start to feel bad
and wonder why. So its important to keep
a close eye on your costs and watch out for
those that gradually increase unexpectedly.
Remember that if someone feels their
job is at risk if their part in your production
process becomes too costly, they may do
their best to conceal growing inefficiencies.
People will go to extraordinary lengths to
protect their jobs if they feel under threat.
The other big problem that can damage
your cash flow is when customers pay you
2 Expert Insights 2016
Ashton_EI_163338.indd 2
late. They too will do their best to distract
you from this because, of course, they are
looking after their own cash flow.
Lets look at some very simple examples
to illustrate my point.
Lets say you are in business selling
framed prints of landmark buildings in
New York. You sell to both shops that stock
your prints and those that sell them on,
and also direct to the consumer online. You
have a retail sales price of $50 per framed
print and offer your stockists a $20 trade
discount.
Each print costs you $20 to produce and
frame, and $5 to ship just one, or $2 each
if you ship a bulk order. So your business
looks like this:
Stockist sales Online sales
Customer pays $30 $50
Delivery costs $2 $5
Production cost $20 $20
Margin $8 $25
At first glance, online sales are far more
lucrative, but because your stockists are situ-
ated within sight of the buildings featured in
the prints, they sell far more prints to tourists
than you can sell online. Your production
costs are only $20 per print because you can
make thousands at a time.
Your online sales are cash positive because
the customer pays online when they place
an order. Because you ask them to allow
14days for delivery, this actually means
you can, if pushed, use their money to pay
the costs associated with the print they are
buying. This is called positive cash flow,
because money comes in before it has to go
out again to cover your costs.
Your stockists, however, are supposed to pay
you 30 days after delivery, but often take far
longer. They too like to sell the prints before
they have to pay for them. This is easier in
summer time when there are more visitors
to the city than in winter.
This is what your cash flow looks like
when everyone pays on time.
29/11/16 6:05 PM
 How to Get Paid, on Time andEvery Time

Month March April May June July August

Opening bank balance $5,000 $2,600 $3,200 $3,800 $4,400 $5,000
You make 100 prints per month so $2,000 $2,000 $2,000 $2,000 $2,000 $2,000
your costs are
Shipping to stockists $200 $200 $200 $200 $200 $200
Labor $200 $200 $200 $200 $200 $200
Total costs $2,400 $2,400 $2,400 $2,400 $2,400 $2,400
Customers pay 30 days after delivery $3,000 $3,000 $3,000 $3,000 $3,000
Closing balance $2,600 $3,200 $3,800 $4,400 $5,000 $5,600

As you can see, if your customers pay as
expected, your original $5,000 investment
is back in the bank after five months, and
from then on, you generate profit.
But your stockists keep ordering, and
so you allow them some leeway. Then
you take a look at your cash flow and see
the impact of this generous approach.
Now they are paying after 60 days, rather
than 30. The cash flow then becomes very
different:

Month March April May June July August

Opening bank balance $5,000 $2,600 $3,200 $800 $1,400 $2,000
You make 100 prints per month so your $2,000 $2,000 $2,000 $2,000 $2,000 $2,000
costs are
Shipping to stockists $200 $200 $200 $200 $200 $200
Labor $200 $200 $200 $200 $200 $200
Total costs $2,400 $2,400 $2,400 $2,400 $2,400 $2,400
Customers pay 30 days after delivery $3,000 $3,000 $3,000 $3,000
Closing balance $2,600 $3,200 $800 $1,400 $2,000 $2,600

That one months slippage has given you
some real problems. You only survive in
June because you pay your own suppliers
late, after youve had the $3,000 from your
customers. Luckily, you can pay your staff as
normal, so you have the very real situation
of yo ur employees knowing theyll be paid
and you worried about survival.
Top tip: When youre new to doing busi-
ness, you may be surprised to learn that
the faster your sales grow, the less money
you seem to have in the bank. The simple
example above illustrates why this hap-
pens. Remember that more companies
go bust during periods of rapid growth
than during a downturn.
That is how 95% of entrepreneurs learn
the importance of managing cash flow!
Ratios To Watch
If youve studied bookkeeping, youll know
all about ratios. But if not, you may have sat
through a finance for nonfinancial manag-
ers course. The inevitable lapse into jargon
by the presenter and your unwillingness to
risk looking stupid will mean you kept your
head down, avoided eye contact, and hoped
it would soon end.
To give yourself the incentive to get tough
about payment terms, there are just a couple
of ratios you can easily work out, even if you
find finance difficult.
Youve probably heard of debtor days.
Its one of those phrases youll hear, and its

Expert Insights 2016 3

Ashton_EI_163338.indd 3 29/11/16 6:05 PM