Stop Giving Away Sales

So, are your sales are right where they should be or even better? Is that an accurate picture? It may be you need to stop giving away sales?

But, Isn’t a Sale a Sale?

It is easy to get excited when we see good or great sales numbers being reported. However, unless we can convert our sales to cash we have not really completed the sales cycle. See the article Poor Quality Sales for some more on this. In answer to the question, “But isn’t a sale a sale?” the answer is yes, but maybe no. Please allow me explain.

The Best Kind of Sale

When we make a sale and are paid at the time of the sale, this is the best of all worlds, assuming of course that we haven’t had to make large sacrifices to profit margins to do this.

The Second Best Kind of Sale

While it is nice to get paid when we make a sale, this is obviously not always possible or even practical. So, that said, the second best kind of sales is one where we are paid in a timely manner. Yes, we may sometimes receive a payment a few days late, but for the most part we get our cash when it is due. When we make sure we are paid on time we stop giving away sales?

The Worst Kind of Sale

I’ve witnessed enough companies chasing after sales where there was a high likelihood of either collecting the cash very slowly, only collecting a portion of the sale, or never collecting the cash at all. These are all bad, but obviously never collecting at all is the worst.

The Problem in a Nutshell

Unless you are willing to be cautious in whom you will sell to on credit, make your credit policies clear to customers, and are diligent in contacting customers who are past due you can expect to see higher bad debts than are acceptable. If you are going to be successful in your efforts to stop giving away sales, you not only need to do the previous but also must be willing to stop selling to those who consistently pay late or don’t pay the full amount. When customers regularly make excuses for paying late or always manage to find some reason not to pay the full amount, they are flashing a bright red warning light. At some point you will probably conclude that they are not the kind of customer you want long-term. However, you don’t need to wait until they have burned you.

Remember, if you cannot collect a sale (that is, turn it into cash), then the result is worse than no sale at all. For example, imagine you sell something for $1,000 that cost you $500 in materials and labor to produce. If you cannot collect $1,000 in cash all you have managed to do is give away $500 in materials and labor. On top of that, you spent money on the effort to make the sale, invoice it, and attempt to collect. That’s a bad deal any way you look at it.

Yes, I know you want to make sales, but if you cannot convert them to cash you are putting your business at risk.

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

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