One of the biggest challenges facing small businesses is maintaining adequate cash flow. Even in periods of growth, it is imperative to monitor your company’s cash inflows and outflows. If you are not monitoring your cash activity, you could be almost out of business and not even know it. Here are 10 quick and easy tips to help improve your cash flows.
- Send invoices out immediately. Many small businesses have a regular billing routine, such as invoicing customers at the end of the month. Instead of waiting to invoice, bill right away when the job is completed.
- Ask for partial payment up front. Or rather than wait until a job is complete, consider asking for a percentage of the bill to be paid before the work starts. Or break the bill into thirds, asking for a third before work starts, a third while the project is ongoing, and a third upon completion.
- Change payment terms. Consider changing your payment terms for customers from 60 days to 30 days. In addition, you can offer a small discount to customers who pay their bills early and charge a penalty to those who pay late.
- Get serious about collections. Make it a regular practice to review your receivables and identify accounts that are late paying or overdue. Then make the phone call or send out the letter requesting payment. Some customers just need a simple reminder.
- Encourage use of payment cards. If you do not already, consider accepting credit card and debit card payments from your customers. This allows you to potentially receive next-day payment for your sales and services.
- Use electronic payments to your vendors. Consider paying your vendors electronically. That way you can wait until the morning of the day a bill is due to make payment. If you utilize this method, ensure you are tracking when payments are due so you do not incur late fees.
- Use your business credit card. For a short-term cash flow solution, consider using your business credit card to make purchases or pay suppliers. Most cards offer a grace period of up to 21 days, and many cards also offer cash back features. It is important to pay these bills in full when they are due so you do not incur additional interest expense, which only makes your cash flow situation worse.
- Consider finance instead of buying. This may seem counter-intuitive, since you will end up spending more in the long run, but financing major purchases over a longer period of time will help maintain a cash stream for day-to-day operations.
- Analyze your cash flow. Most companies go through cyclical highs and lows. A cash flow analysis may help highlight the cycles in your business. This information may be used in many ways, such as timing your borrowing, arranging the ideal amount of staffing, and boosting your marketing efforts during lulls.
- Work with an accountant. The services of an accountant may serve as an investment rather than an expense. An accountant can review cash flow projections and results, provide insights into areas you may have overlooked, and help you anticipate and plan for cash flow problems.
These are just a few simple ways to improve your company’s cash flow. For more information on this topic or accounting and tax related questions you may have, contact a Smith Schafer professional.