Tips To Improving Your Cash Flow
In the world of business, “cash really is king”. If you can’t pay your bills, if you can’t buy required materials or if you can’t pay your employees, unfortunately these are the things that will keep a business owner tossing and turning all night long.
For any business, but especially for a small business, the business owners must become masterful in managing his or her cash flow. If you are wanting to continue to grow, then it is even more important.
Here are some tips to managing your cash flow:
- Timely Invoicing – Don’t delay when it comes to issuing invoices. Many small business owners dread the work that comes with doing paperwork. They put it off and focus on the “real work” and don’t see the paperwork as being as important. In fact, it is equally as important. the longer you wait to invoice, the longer you wait to get paid. No money means you don’t get to do the work you love.
- Progress Payments – Depending on your business, it may be appropriate to implement progress payments so that you are paid as you go. If you are working and outlaying cash to your suppliers well in advance of completing the job, then getting paid at some sort of increment will ease the pressure.
- Set Payment Terms – Sometimes owners are reluctant to ask their customers for the money they are owed. They are afraid if they push the issue of payment, they might turn off their customers and because of this, they avoid it. Collecting money owed doesn’t have to be a tough thing if you talk to and get agreement with your clients or customers about your payment terms up front.
- Make Getting Payments Easy – Don’t be afraid of the fees charged to be able to take credit cards. Yes, those fees mean less money in your pocket, but when you don’t have to wait for a cheque in the mail, it means that you get your money faster. If you weigh out the cost of the fees as compared to what it would cost you to finance your business, it generally evens out. Make it easy for people to pay!
- Accounts Receivable Process – Establishing a process for collecting accounts, takes some of the emotion out of the process. If you expect to receive payment thirty days after issuing an invoice, then on day thirty-five make sure you give them a call and remind them, without exception. You need to train your customers. If they know you are going to call, then chances are they will make arrangements to pay you on time. (Remember they don’t necessarily like getting these calls either.)
- Recognize Your Ideal Customer – If a customer or client refuses to pay you on time, they are not your ideal customer, regardless of the amount of work they are giving you. Ideal customers pay you on time, so focus on servicing them and expanding your business by finding more people like them.
- Expand Your Credit – Most people don’t think about expanding their credit ahead of needing it, however it is always easier to get money when you don’t need it. Talk to your bank about a line of credit or an operating line when you are doing well. It is easier for them to approve it during these times, than it is to get it approved when you need it.
- Set a Budget – In any business, there are periods when cash is tight and periods when there is more. When there is lots of cash, people will spend it on the “nice to haves” and forget there are expenses coming up where they will need it. Set a budget that realistically sets out when expenses are going to be incurred and keep it in front of you as a reminder, so you don’t get caught off guard.
Cash flow management is critical to not only operating but in expanding your business. Putting in place these few easy tips will make all the difference in your business….and I promise you will sleep better!
