Working in a collision repair facility, you know that cash flow is the lifeblood of your business. It allows you to pay your bills, invest in new equipment and grow your operation. It’s no secret that managing cash flow can be a challenge, especially in an industry with fluctuating customer demand and long repair cycle times.
The industry is still facing a scheduling backlog of 2.7 weeks and average cycle times of 12-13 days. How does this impact cash flow? While a backlog feels "safe," it also gives consumers more time to change their minds by not deciding to do the repair at all or take their business to another shop -- both scenarios poke holes in your projected income. And if you’re pre-ordering parts, that can add time and make that hole even bigger. Here are some tips below to help keep your shop’s financial health strong with transparency and control.
Accounts Receivable: Get That Money
One of the biggest challenges to managing cash flow is collecting payments in a timely manner. Uncollected receivables can quickly turn into bad debt and impact a shop's financial stability. Tightening up a few processes and ensuring you have the right offerings can make all the difference.
• Final Bill and Send Invoices Promptly: don't wait to final bill. Put checks in place pre and post vehicle delivery to ensure invoicing is correct, the right amounts are collected at pick up, and every requirement is properly met following vehicle delivery. Think of it like this: the faster the invoice goes out, the faster you can turn that "money owed" into "money for that sweet new measuring system."
• Offer Multiple Payment Options: make it easy for customers to pay with a variety of options such as onsite and digital payments. Consider showing customers their estimate and invoice totals in real-time throughout the repair. This can help alleviate last-minute questions.
• Follow up on Outstanding Invoices: don't delay payment follow-ups on aging AR. Your management system should show you if anything was missed. It’s often something very simple that needs to be handled for payment to be triggered.
Consumer Payment Options and Surcharging: It's Not Just a Fancy Word
Surcharging for credit card payments in the collision repair industry is becoming increasingly common and for good reason.
• Direct Recovery: credit card processing fees can eat into a shop's profit margins, especially on large transactions common in collision repair. These fees typically range from 1.5% to 3.5% per transaction. Ensures your shop receives the full amount for services rendered.
• Boost Margins: by offsetting processing fees, surcharging directly contributes to a healthier bottom line. This extra revenue can be reinvested in the business for equipment upgrades, employee training, or marketing efforts. Or maybe even some new tools or gadgets to give as rewards to technicians.
• Customer Choice: surcharging provides transparency and gives customers a choice. They can pay with a credit card for convenience and potentially earn rewards, or they can opt for a less expensive payment method.
Spend Controls and Payment Visibility: Keep an Eye on the Money
Ensuring you have a few controls in place with some transparency sprinkled in will help you optimize your working capital and increase your efficiency.
• Reduce Unnecessary Costs: implementing spend controls allows shops to set limits and approval processes for purchases, preventing overspending.
• Prevent Fraud and Misuse: Spend controls, such as requiring multiple approvals for large purchases or restricting the use of company cards to specific categories, help prevent fraudulent activities and unauthorized spending.
• Enhance Financial Control: Real-time visibility and control over spending and payments provide a comprehensive understanding of the shop's financial health.
In Conclusion: Cash is King
Managing cash flow is like playing a game of Tetris -- you need to strategically fit all the pieces together to avoid a messy pileup. By implementing these tips, you can improve your cash flow and keep your business running smoothly. Need some help? Our CCC ELEVATE advisors are here for you.
