While sometimes Cash Flow in your business or company can seem overwhelming, like steering a large ship with a small rudder, there are some cash flow strategies and tactics that you can implement instantly that can bring immediate results.
1. Invoice timely. When an order is shipped or a service delivered, invoice immediately. Set what I call Turnaround Times (TATs) on your AR or Billing staff to invoice within 12-24 hours, maximum. If you’re not immediately, start today!
2. Cut the Paper. Use electronic billing. Essentially, automate your AR and Cash Receipts cycles. Your cash receipts (cash, credit card, ach, etc.) can be deposited directly to your account and everyone saves on the cost of paper and stamps. More importantly, you take the human aspect out of manual cash receipts and remove human error rate. And, taking electronic payment helps your customers or clients. It’s fast, and customers are likely to respond more quickly when they can pay instantly. Quickbooks, Freshbooks and WePay are some online billing programs designed for small business owners. Larger, middle-market ERP and Accounting systems such as Intacct, Microsoft Dynamics or Sage have electronic billing and cash receipts built into their basic applications. Both the ROI and the time to deploy are very fast!
3. Be Specific on Payment Terms and Due Dates. Set clear payment terms and expectations in your initial customer agreements. Spell out your terms on every invoice and 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. Change your stated terms today on your Invoices!
4. Don’t Be a Bank. You’re not a bank for your customers or clients. So, you must implement Late Fees on all past-due invoices. Without them, your customers may put off payment until a time that’s convenient for them but not for you. Start charging Late Fees today!
5. Offer Incentives. Incentives for early payment give customers and clients 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. If it makes financial sense for your business, offer these Incentives today on your Invoices!
6. Sell your invoices. I’m talking about Factoring, which is invoice specific. 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. That means cash right away. Factoring can cost more but in the short term or when cash flow issues are present. Factoring is an excellent way to improve operating cash instantly. This may be a good option if you typically have to wait 30, 60 or 90 days for payment of your invoices. Warning: I recommend Factoring ONLY when Sales are increasing. If you have declining Sales or decreasing Gross Margins (meaning your Cost of Goods is increasing), be VERY careful with Factoring as it can put you on a merry-go-round that could be deadly. Bottomline: Factoring works as short-term cash flow help.
7. Get Asset-based Financing. If you occasionally meet up with cash flow problems, a Line of Credit (LOC) with a bank or credit union can be helpful to tap into as needed. The Line of Credit can be tied to your assets OR it can be simply an unsecured line of credit on your business. Warning: Avoid giving personal guarantees or using your personal assets, such as your home, as collateral. Let the fundamentals of your business dictate the line of credit you need and can obtain. If your business doesn’t have the fundamentals to obtain financing on its own, then that tells you some changes might be in order to correct your infrastructure.
8. Slow Pay Invoices. This means, slow down on paying your bills. Hold off on paying bills until they’re due but don’t incur late fees. Walk that balancing act. Warning: If you’re presented with a worthwhile incentive for early payment, by all means, take advantage of it but ONLY if you are flush with cash and have no debt. Otherwise, it will make more sense financially to pay down debt or just keep the cash to improve your operating cash position.
9. Auto-Pay programs. Take advantage of auto-pay or what is called “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.
10. Flash the Cash. Monitor your cash flow status on a weekly basis. This means create a basic “Flash Report” for Cash. Have your accounting team prepare this for you. Don’t wait for the monthly close or bank reconciliation. Monitor Cash Weekly. 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.
Remember:
You Can’t Manage What You Can’t Measure.