- Created on Saturday, 03 January 2004 04:09
- Written by Leonard Leff
The ability to obtain payment on invoices in a timely manner is a constant source of concern for many laundries. Often, laundry proprietors are pre-occupied with the operational issues of their business while focusing on making sales and attracting new accounts. So it is not uncommon for a variety of "backroom" clerical tasks to be pushed aside, such as creating detailed, documented invoices, statements of account, making collections and monitoring the supply of cash flow.A laundry that sacrifices this work in favor of generating sales can ruin a business. On the surface, new accounts, sales opportunities and a humming plant mask looming problems. However, when laundry finances are overlooked and the proprietor needs to make payroll, purchase detergent, equipment, pay rent, taxes, or hire employees - there may be no money available.
This wake-up call often turns into an emergency, or a crisis. It then becomes evident that the care and attention to the financial heath of the facility was overlooked. Additionally, when the financial health of a facility has been sacrificed, a laundry owner may be at an impasse if he does not have the cash flow and financing available to add a new business account where he has to be prepared to wait 30 to 150 days for payment.
But laundry owners can line up financing and cash flow requirements, well before the need becomes apparent.
THE COSTS OF NOT DOING IT YOURSELF
There are financing companies available to handle monetary matters and "backroom" responsibilities for laundries. However, some owners view the costs, fees, and terms associated with outside consultants as an obstacle.
The expense of having an outside company handle your "backroom and fund your receivables " or financial matters can range from four to five percent of the total amount financed. This includes interest charges ranging from 2-3 percent plus expenses, costs and fees. Additionally, when money is advanced to fund a receivable, the client is ultimately responsible for payment to the financing company if they can not collect on the invoice. Any outstanding money on financed receivables must be paid with interest to the financing company.
The amount of payroll advances must be secured and supported by incoming receivables. The financing company buys rights to those receivables and takes a percentage (4-5 percent) as payment for their services, which includes their payment, interest and any collection expenses that they have incurred. If the amount advanced is not met by incoming receivables or they can not be collected, the financing company will obtain their payment plus interest from future invoices.
THE PROS OF PRE-POSITIONED FINANCING
Some owners may view the cost of having additional financing in place as an unnecessary expense -- or a luxury. However, pre positioned financing assures a laundry that when a new business opportunity arrives, there are no concerns with credit terms. And, a laundry owner can take advantage of pre-payment discounts when buying supplies or paying vendors.
Pre-positioned financing reduces distractions from concentrating on new sales. Sharp policies on items such as billing, invoicing, collections and statements of account demonstrate the integrity of an enterprise. It is important to start off all customer relationships with a clear, consistent process. A relatively small laundry can appear to be a much larger organization if its "backroom" is efficient with attention to detail.
A number of laundry proprietors have a hard time overcoming two hurdles. They are afraid to have an outside, independent consultant handle their accounts and perhaps long-standing clients. However, for the health and strength of a proprietor's business, delays and excessive time for a customer's payment must be addressed. If a customer is not going to pay or takes an unfair advantage of the accounts receivable process, the proprietor's relationship is greatly diminished from what he intended. And often, the outside consultant, is able to remove personal feelings from a business arrangement and stick to the issue of prompt, reasonable payment in exchange for service.
As a laundry owner, if you respect the "backroom" it will demonstrate respect and value for your business. If you ignore the backroom, it will ravage your business.
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