Few things are as aggravating or lead to as many failed businesses as less-than-adequate cash flow. How cash flows through your firm from sale to invoice to receipt is the lifeblood of any company, and accelerating it allows you to do more and ensure your company's stability.
Another factor, often overlooked, is that if customers take longer to pay you than you take to pay vendors, you are really lending your customers money.
Here are seven tips to speed up your cash flow:
- Offer discounts.
Offer customers price discounts. No one likes to pay more if they don't have to. Make sure you highlight the discount in the contract and invoice, too. Some customers might surprise you and overnight a check to make sure they don't miss the discount.
- Go online.
Online systems make submitting invoices much easier. If, like millions of Americans, you pay credit card, utility and other bills online, you know how quick and easy it is. Why not use such a system yourself? The best part is that money is electronically deposited directly into your account. There are dozens of online bill payment services out there. Investing in a little research today can yield big dividends tomorrow.
- Require upfront fees.
This may sound harsh, but if an account requires you to expend big dollars on its behalf, you may be losing money. It will help your cash flow enormously to collect as much of that money as possible upfront. Try submitting an invoice payable on receipt. Hopefully most of your customers will understand that you're a small business, not Microsoft, and are willing to work with you.
If customers take longer to pay you than you take to pay vendors, you are really lending your customers money.
This is even tougher. But if you are well underway in a project and the customer delays payment, think seriously about stopping and asking for payment before your team finishes. This may be the most valuable leverage for small government subcontractors in particular. Last September, the Obama administration launched QuickPay, which slashes the government's internal deadline for paying contractors' invoices from 30 days to 15. Now there are accelerated payment rules for subcontractors, too. Learn more about it.
- Accept credit cards.
Accepting credit cards will cost you origination fees, true, but it might be worth it to help get you your money sooner. Many accounting packages already have a built-in ability to take credit cards.
- Invoice lower, more often.
Large invoices tend to get stuck in the payment process, probably because so many people have to sign off on it. A smaller invoice attracts far less attention and is more likely to be paid on time. Do a review of customers and dollar amounts to see if there's a gap between invoices paid quickly and those that languish on customers' desks.
- Review your customers' accounts payable process.
Again, this might seem obvious, but it's often overlooked. Why not have a conversation with your customers about their accounts payable processes at the start of your relationship? Knowing your customers' processes will help you when you bid for new business, make you seem more professional and likely shorten the payment cycle, too.
Additional financial help for your business is available from the business specialists at your local SBTDC office. To find the center closest to you, visit www.missouribusiness.net/sbtdc/centers.asp.
This story was featured in the September 2012 newsletter