The last thing your growing business needs is to run into cash flow problems that could prevent you from paying bills or making much-needed improvements to your business. These simple tips could significantly improve your business cash flow and thus improve your business overall.
1. Send invoices immediately and shorten payment periods
Always send invoices as soon as you have delivered your product or service. This ensures that the clock starts ticking for the client. You should also consider altering your payment terms to require payment faster. Requiring clients to pay within 30 days of receipt of the invoice instead of 60 could make a big difference in business cash flow.
2. Stay on top of invoices
This one may seem obvious, but it’s not at all uncommon for habitually late clients to fly under the radar. Many businesses, especially smaller startups, will let payments that arrive just a few days late slide, but that can create a dangerous precedent. Make sure you have a clear-cut system in place for sending out invoices and following up on payments. Your invoices should also include clear language that states that late payments will have a specified late fee applied. If you’re worried about the harsh language scaring off your beloved clients, you can also offer early payment incentives. By giving your regular customers a discount for paying their invoices early, you can both improve your business cash flow and show your customers that you appreciate their business.
3. Factor in seasonal highs and lows
Many businesses have predictable dry spells and surges in business. For example, gyms tend to sell a lot more memberships in January than they do in June. This knowledge not only helps them plan out specials and promotions, but it can also prompt them to save some of that surge money for when the new membership sign-ups start to slow down. Study your business and pinpoint times of the year when business is most likely to be slow. Proper forecasting can be incredibly effective and help you avoid business cash flow issues during less busy times.
4. Accept and encourage credit and debit card payments
Credit card and debit card payments allow you to receive payment and have access to the funds much quicker than with checks. They’ll also save you the time and hassle of having to deposit the check. Encourage your clients to pay via credit card or debit card by offering discounts or other incentives. It is, however, important to run credit checks on new clients. If you find that your potential new client has bad credit, making the sale might not be worth it because you could very well end up waiting quite a while to receive payment, if you do at all.
5. Use a business credit card
For periods of cash flow issues, business credit cards can be very handy. Credit cards will allow you to make your payments on time, even if you don’t actually have the money in the bank just yet. Most business credit cards offer up to a 21-day grace period before interest accrues on your charges, which could make a big difference for you as you hunt down clients for payment. Business credit cards also offer a variety of incentives such as cash back rewards so you would actually be rewarded for using the card. Just be careful not to depend too heavily on the credit card. Try not to charge more on the card than you are expecting to receive in payment within the next couple of weeks. Debt adds up fast and the interest you will pay on that debt will only cause more cash flow issues.
These tips are also fairly simple to implement and committing to them could make all the difference for your business cash flow.