Improving Cash Flow - Three Tips
From The Experts
Keeping enough cash on hand to meet daily cost demands is the chief responsibility of any person who runs a business. In its simplest explanation, cash flow management is the ability to wait to pay your bills as long as possible, and to make sure that everyone who owes you money pays immediately. In practice these things are hard to do. Read on for three tips to help improve cash flow.
- Control Receivables - Creating an invoice feels good, but collecting the money feels better. So, how do you get your invoices paid faster?
- Ask Customers For A Deposit - By receiving a deposit with an order, you are able to use your customers’ money to produce the product or prepare the service. This reduces your out-of-pocket expenses, freeing up cash for other uses.
- Offer Discounts For Early Payment – Relate an invoice being paid quickly to a dollar value. Think about what that dollar value is for your business. In other words, what is it worth to be paid early? Offer your customers a discount if they are willing to pay ahead of the invoice’s due date.
- Always Put A Due Date On The Invoice – I see lots of invoices marked with payments terms of “due on receipt”. This just gives people too much wiggle room from a payment timeline perspective. In my experience, people are likely to pay more quickly if you replace this language with the date the invoice was delivered and a specific due date.
- Delivery, Accuracy And Follow Up – Make sure you deliver the invoice as soon as the product or service is delivered and be sure that the invoice is accurate in all respects. Large corporations often delay payment if your paperwork isn’t presented as required. Once the invoice is delivered, promptly and accurately, follow up with reminder calls and send reminder emails right before, and right after, the due date.
- Control Payables - A growing business has increasing financial obligations to its vendors. The following are strategies you should implement to maximize your relationships with your vendors, while using their cash as long as possible.
- Musical Chairs – Sometimes it isn’t possible to make all vendor payments every month on time. One of the strategies I have seen employed successfully is to rotate monthly which vendor is paid late. Pick the vendor that you believe is the most accepting and don’t pay them until they call for payment. Then, pay them immediately when they call and on time the following month or two, and then repeat the cycle.
- Payment Terms – When deciding which vendor to use, make sure that you just don’t focus on the lowest price. For a growing business, extended payment terms are more valuable. In other words, take on a payment plan with a low-or-no-interest monthly payment for new assets in lieu of paying up front, in full, each and every time. The monthly budget makes your cash flow more manageable.
- Pay Electronically – Pay your bills by ACH. This allows you to keep the use of your funds as long as possible and allow your cash flow to be more predictable than paying with checks.
- Deal With Shortages – Every business has times when cash is thinner than average. Try to anticipate those times as early as possible and plan for them. Some strategies to deal with a shortage are:
- Financing Receivables – If you have tried everything outlined above and still have too much cash tied up in accounts receivable, try a factoring service. Financing receivables through a factoring service is a way to get the cash from your customers immediately instead having to wait 30, 60 or 90 days.
- Suppliers – Explain the situation and ask for their support in delaying payment to them. You may be surprised how they react. If you present your case professionally, they may appreciate your honesty and offer some leniency in your payment schedule.
- Discounts – Offer your largest customers a one-time discount if they pay early. Explain the situation, and you may find that your customers respond positively to the opportunity to save a small percentage of their invoice.
To learn more about how Fast A/R Funding can improve your business cash flow, call one of our cash flow consultants at 888.833.2286 or visit Fast A/R Funding online for more information.
