Achieving 50% Business Growth Through Improved Payment Collection

Background

In the industrial hub of North India, an enthusiastic, action-oriented business owner with progressive thinking embarked on a journey to transform his EPC (Engineering, Procurement, and Construction) company. The business had grown steadily over the past 12-13 years, but the owner sought to scale up to the next level in a sustained manner. While working with Business Coach Milind Bibikar on various aspects, one critical goal was to improve payment collection and enhance cash flows.

The business, with a turnover of ₹10 crores, faced challenges with overdue outstanding amounts. The average outstanding at any point was ₹2.75 crores, with an inventory of ₹1 crore and a working capital (CC limit) of ₹25 lakhs. On average, it took 100 days to collect payments, while the CC limit could only fund 9 to 10 days, indicating that the owner was managing efficiently through own reserves, profit rotation, and vendor term management.

Transformation Journey

Coaching Methodology:

Milind’s approach included weekly 1-2-1 Zoom video coaching sessions. As a confidante, Milind helped the business owner overcome limiting beliefs and take impactful actions. The process involved brainstorming and concluding agreements, empowering the owner to make decisions by analyzing their situation holistically.

Aging Analysis:

The first step was to perform an aging analysis to track outstanding payments and identify gaps. For many technocrat business owners, finance is often a neglected area. It took four months to get a consistent aging analysis report due to issues with accounting entries, on-account payment entries, buy and sell relations with the same parties, availability of skilled accounts personnel, and the owner’s availability for review.

Setting Goals:

Clear goals were established to reduce the percentage of accounts receivable (AR) from higher aging slabs (90-120-180 days) and increase it in lower aging slabs (30-60 days). Weekly monitoring ensured progress towards these goals.

Prioritizing Long-Overdue Accounts:

Actions were taken on a priority basis for accounts overdue by 120 days or more. Some were bad debts with clients having no intention to pay, but considerable amounts were collected from the 120-180 days slab, which would have otherwise turned into write-offs. Other disputes or minor documentation issues were reconciled and resolved.

Preventing Payment Shifts:

Strategies were created to prevent payments from shifting to higher aging slabs, with specific actions to prevent movement from 30 to 60 days, 60 to 90 days, and beyond.

Distributing Responsibilities:

Responsibilities for collection, preparing aging analysis, following up, and supporting completion activities were distributed among different team members, reducing the burden on any single person.

Weekly Review Meetings:

Weekly review meetings with a defined agenda and progress trackers were instituted to monitor and ensure continuous improvement.

Continuous Improvement

The focus initially was on corrective actions, but plans were also made for preventive measures such as negotiating better payment terms.

Outcome

After one year of implementing these strategies:

• Business Growth: The business grew from ₹10 crores to ₹15 crores, a 50% increase.
• Improved Cash Flow: Average outstanding reduced to ₹2.5 crores, freeing up ₹25 lakhs of extra cash.
• Faster Payment Collection: The average number of days to collect payments decreased drastically from 100 days to 60 days.
• Sustained Growth: The company managed to accommodate 50% more business within the same CC limit of ₹25 lakhs.
• Enhanced Efficiency: New customers were added, leading to recurring business, and the hiring of additional telecallers who became productive within 15 days of joining.

This transformation was not an overnight success but the result of a clearly thought-through plan, proven strategies, continuous handholding, support, and monitoring by Coach Milind Bibikar. It demonstrates that with the right approach, businesses can achieve significant growth and improved cash flows, even in challenging circumstances.

This case study serves as an inspiring example for other businesses facing similar challenges, illustrating that with the right guidance and persistence, overcoming obstacles and achieving substantial growth is entirely possible.