Managing cash flow is the lifeblood of every small business. Your work may reward you in ways that aren’t about money at all, but if the cash flowing in doesn’t exceed the cash flowing out, you’ll probably be in trouble before long writes Kathy Simpson in The Hartford SmallBiz Ahead blog.
This is a thoughtful list, but Peak Advisers adds some additional suggestions.
These 12 ways to improve cash flow can help you encourage incoming payments, delay outlays of cash and stay on top of everything in between–like payments, late fees and billing cycles.
1. Invoice immediately. Don’t wait until next week or next month. If you wait to invoice your clients, your creditors may think they can wait, too.
From Peak Advisers: If selling products to consumers, invoice ( and collect) when the product is sold. If selling products to other business be sure to invoice per your terms and follow up on your invoice. If delivering services or working on projects, establish interim payment dates or collect a retainer or deposit upfront.
2. Use electronic billing. It’s fast, and customers are likely to respond more quickly when they can pay instantly. Your deposits can be deposited directly to your account and everyone saves on the cost of paper and stamps. Freshbooks and WePay are two online billing programs designed for small business owners.
From Peak Advisers: Do not mail invoices. Email only and just as important enable payment from the invoice. Peak Advisers always recommends that QuickBooks users obtain an Intuit Merchant Services account so that ACH, credit card and e-check payments are enabled within QuickBooks. Doing so not only enables payment convenience for the customer, it applies payment to the customer’s account in QuickBooks. Download an application here and email it back to us.
If using QuickBooks, both the Online and Desktop versions allow you to track the delivery and status of emailed invoices from within QuickBooks. The status will show the dates the invoice was sent, viewed by the customer, date paid and date received.Use this tool to make sure invoices are being received by the customer and that they have viewed them. If appropriate, follow up with the customer to confirm receipt and planned pay date.
3. Get it in writing. Set clear payment terms and expectations in your initial customer agreements. Spell out your terms on every invoice.
From Peak Advisers: Include in your terms that you prefer electronic payments and that any physical check received will be processed as an e-check.
4. Include a specific due date. “Due upon receipt” can be ambiguous, while “payment due within 30 days of the bill date” clearly communicates your expectations.
5. Institute late fees. Without them, your customers may put off payment until a time that’s convenient for them but not for you.
From Peak Advisers: We are not a fan of charging late fees. In our opinion far too much time is spent managing late fees in relation to the return. Nonetheless, make late fees part of your written terms and conditions. Doing so allows you too collect them in collection actions.
6. Offer positive incentives for early payment. Give customers a good reason to pay sooner than they normally would. An example might be a 1-2% discount for payments received within two weeks of the bill date.
7. Sell your invoices. If your need for payment is especially urgent, you can sell your invoices for work already done to a factoring company. In exchange for a small fee, they’ll pay 90-99% of your original invoice amount upfront. This may be a good option if you typically have to wait 30, 60 or 90 days for payment of your invoices.
From Peak Advisers: We recommend every small business sign up for FundBox. It is better to have the ability to sell invoices and not need it than need it and not have it.
8. Slow down on bills. Hold off on paying bills until they’re due. If you’re presented with a worthwhile incentive for early payment, by all means, take advantage of it. Otherwise, set your target for a day or two before the due date (just to make sure your payment arrives on time and you don’t incur late fees). If you pay electronically, you can schedule in advance and with precision.
From Peak Advisers: Pay all bills electronically. Use a credit card, your bank’s ACH payment system or Bill.com. Eliminate the possibility of check fraud by paying electronically.
9. Periodic payments. Take advantage of periodic payment programs that are fee-free. For instance, small businesses with workers’ compensation coverage can pay their premiums every time their payroll is run. Payments are based on actual payroll, eliminating the need for a large down payment, and carry no installment charges.
From Peak Advisers: We highly recommend using the workers’ compensation coverage available through QuickBooks payroll. It is price competitive and is based on actual payrolls, not annual estimates.
10. Monitor your cash flow status on a weekly basis. Check off what’s been paid, what’s coming due and what’s late. Send reminder notices as necessary, and don’t forget to tack on your late fee.
11. Get a CPA if you don’t already have one. A CPA can help guide you toward your financial goals and offer corrective action should you begin to veer off course. Taxes, of course, are part of the equation and ever-changing, making the aid of a professional essential. A CPA can help ensure you’re taking best advantage of the deductions that can benefit your business and help improve your cash flow.
12. A line of credit. If you occasionally meet up with cash flow problems, a line of credit with a bank or credit union can be helpful to tap into as needed.
From Peak Advisers: For small business, We recommend skipping the bank application process and go online with FundBox or similar services. They offer quick response time and it is better to have it and not need it than need it and not have it.
Next Steps: Not sure if you’re using the most budget-friendly CRM system? Don’t know if you’re using the right tools for managing your day, paying your employees, and billing your customers? We’ve got you covered with the weekly Small Biz Ahead Newsletter. Sign up today and start receiving the weekly newsletter chock full of the latest tools and resources to help you run a successful business.
Any questions? Call Peak Advisers 303.801.4772 or contact us here.