How to ramp up cash flow and profitable sales
BY ABE WALKINGBEAR SANCHEZ
Cash enhancement specialist
Old military funny money finds new life in business credit.
During this time of dropping sales and extended delays in credit customers’ payments an old idea is reborn.
During the Vietnam war U.S troops and sailors in Asia were paid in funny money, i.e. mpc (military payment certificate). This funny money which was also called “monopoly money” was in use up until 1973. You could convert mpcs to U.S. dollars upon leaving a designated mpc zone, but while in these zones all you could do with it was go to the post exchange or ship’s store and convert it to the local currency. Mpc in Vietnam had pictures of movie stars on it and I can’t remember for sure but I think the Marilyn Monroe was on the $20 bill.
Interesting, but what does this have to do with improved cash flow and more sales?
Companies sometimes offer credit customers a 2-10-N30 payment term. i.e. the customer can take a 2% discount off the invoice amount if they pay it within 10 days otherwise the full invoice amount is due in 30 days. The idea being to spur cash flow.
Any customer not taking advantage of a 2-10-N30 early pay discount fails to do so for one of two reasons:
- They don’t have the financial ability to do so — no money
- The sales and credit guys failed to explain that a 2-10-N30 is worth a 37.24% Annual Rate of Return. Where else can you get 37.24% return with no risk?
There’s a problem with early pay discounts in that sometimes customers will cut a check for payment on an invoice, less 2%, on the the 10th day but will not release the check until the 30th day or the 60th day, thus defeating the very reason why the discount was offered in the first place — and further creating additional work and cost for both seller and customer in the pursuit of the unearned discount. I’ve never liked 2-10-N30 terms for these reasons.
The best of MPCs and early pay discounts
There is a way to use an early pay discount to improve cash flow and also bring the customer back to buy again thus gaining the most profitable sale, the repeat sale.
Instead of offering a 2-10-N30 term a business can send out, along with an invoice, a vcdc; A Valued Customer Discount Certificate for 2% of the invoice amount — and they can put the selling company’s ceos picture or the selling salesperson’s picture on the certificate — or Marilyn Monroe’s picture. Each vcdc would carry the same # as the invoice it applies to and thus would be easy to track.
The VCDC would clearly state that if the invoice the vcdc applies to is paid within 10 days of the invoice date the customer can use the vcdc on their next purchase. If a customer pays in 15 days, cut them some slack and accept the vcdc on that next most profitable purchase, the repeat.
The end result? Improved cash flow and repeat sales. All too often we walk a mental rut, we do the same things over and over again in the same way, until the rut becomes a mental trench and then we think we can see the horizon for oncoming danger or new business opportunities when in effect all we really see is a wall. And that’s not to say that a trench can’t be comfortable and easy to navigate, but God help you if things change and the walls give way.
During this time of dropping sales and extended delays in credit customers’ payments an old idea is reborn and to those with the courage and sense to take advantage go the spoils, i.e. improved cash flow and more repeat sales.
Abe WalkingBear is an International Speaker / Trainer / Consultant on the subject of _cash flow / sales enhancement and business knowledge organization and use. Co-Founder of www.profitinnercircle.com, and President of www.abewalkingbear.com, he is the author of Profit_Centered Credit and Collections 1999, co-author of STAFDA’s Foundations of a Business 2007, and co-author of the new international book, The Best Kept Profit Secret: The Executive’s Guide_to Transforming a Cost Center 2009. http://www.thebestkeptprofitsecret.com
WalkingBear has authored hundreds of business articles, has worked with_numerous companies in a wide range of industries since 1982 and has spoken at many venues_including the Shakespeare Globe Theater in London. A hard hitting and fast paced speaker, _he brings life and energy to a critical business function whose true potential has yet to be realized by most businesses.