Tips to improve your "contract to cash cycle"
In challenging economics conditions, deal cycles tend to take longer and companies tighten their purse strings. Negotiated terms do not always ensure timely payment and your point of contact likely does not control invoice payment. By understanding how procurement and payment cycles work, you can improve your "contract to cash cycle" regardless of the economic conditions.
- Understand how the contract process works - The number of folks involved in contract negotiations and execution may vary based on the size of the potential client. Negotiations may take place with one individual with a small business and may involve departments such as Finance/Accounting, Legal & Procurement in larger organizations. You can avoid contract execution delays due to multi department negotiations if you identify who the major players are up front. You can then have discussions with the all the parties involved simultaneously rather than in a series which prolongs deal execution.
- Do not underestimate the power of a Procurement organization - the larger the company, the more likely you will find yourself navigating the Procurement organization. Be prepared. A deal is often not complete with a just a signature. Large companies typically have a "Vendor Approval Process" which may involve credit & reference checks. Supplier Diversity programs may exist that require clients to gather information about your business before approving you as a vendor. Completing this process in tandem with deal negotiations will speed contract execution. Furthermore, many companies will not accept invoices that do not reference purchase orders Procurement organizations will only create purchase orders when you have satisfied their vendor approval criteria
- Find the Finance person up front - Companies have different rules about invoicing. Some require paper invoices. Some will accept electronic invoicing. Some even have their own proprietary procurement systems that you must access in order to submit invoices. Your Point of Contact may not understand the complexities of the invoicing/payment process. Identify the finance/accounting person when a deal is executed. They can guide you through any process and provide you with payment updates without you continually having to involve your Point of Contact.
- Always push for better payment terms. Always. When in a position of strength, always ask for a prepayment.
- Ask when payments are made - Weekly? Biweekly? Monthly? Depending on you when checks are cut, you can adapt the timing of your invoicing to allow for invoice approval and inclusion in the next check run. Payments can be unexpectedly delayed if you just miss a check run.
- EFT - Many companies will pay via wire rather than check.
- Stay calm when addressing late payments - When dealing with a client whose payments are delinquent, just state the facts "Per the contract signed on May 5, you agreed to payment terms of Net 30. Invoice # 165 was submitted on June 1. Payment was therefore due on July 1. Your attention to this matter is greatly appreciated. T hanks."
By anticipating the roadblocks that you may encounter in deal execution and invoice payment, you can reduce your "contract to cash cycle" thus allowing more time to focus on growing your business.