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How To Ramp Up Cash Flow

Old military funny money finds new life in business.

During the Vietnam War, U.S. troops in Asia were paid in “funny money” called MPCs (military payment certificates). 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. MPCs in Vietnam had pictures of movie stars on them. I can’t remember for sure, but I think 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; the customer can take a two percent 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.

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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. Or, the sales and credit guys failed to explain that a 2-10-N30 is worth a 37.24 percent annual rate of return. Where else can you get 37.24 percent return with no risk?

The problem with early pay discounts is that sometimes customers will cut a check for payment on an invoice, less two percent, on the 10th day, but will not release the check until the 30th or 60th day, thus defeating the very reason why the discount was offered in the first place. This creates additional work and cost for both the 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
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 two percent of the invoice amount. They can put the selling company’s CEO’s picture or the selling salesperson’s picture-or Marilyn Monroe’s-on the certificate. Each VCDC would carry the same number as the invoice it applies to and thus would be easy to track.

The VCDC would clearly state that if the invoice to which the VCDC applies is paid within 10 days of the invoice date, the customer can use the VCDC on his or her next purchase. If a customer pays in 15 days, cut him 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. We think we can see the horizon for oncoming danger 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: improved cash flow and more repeat sales.

Material Handling Equipment Distributors Association

Abe WalkingBear Sanchez Meet the Author
Abe WalkingBear Sanchez is founder and president of A/R Management Group Inc. and co-founder of the Profit InnerCircle LLC. He is based in Canon City, Colorado, and on the Web at www.abewalkingbear.com.

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