Cash flow for any small business is a big deal. When cash flow becomes a problem, that is, there is a lack of it, then it can impact the business and the ability to grow your business and become more financially stable as a business. Negative cash is one of the main reasons why a number of small businesses don’t make it past the first few years of operating. But what can you do to improve your cash flow, and avoid any negative cash flow? Getting your business in the right place with positive cash flow is so important.
One of the key factors to increasing cash flow is not just about getting in more cash than goes out. But you need to also think about the money that is going out in the first place. This is all about your business expenses, just as much as the actual sales that you are making. So with that in mind, here are some practical tips to help you to improve the cash flow of your business.
Send Invoices Right Away
There is definitely something about out of sight and out of mind when it comes to money. If someone has already received something, then it can be really easy for them to forget about paying. If the invoice is delayed, then they can forget about it even more! Sales and invoices are what keep small businesses going. You won’t be able to get paid if you aren’t able to send out any invoices. Simple. There can be a number of things that can get in the way, but the more that you stay on top of your invoicing, the more quickly that you will get paid.
You need to stay on top of invoicing, and the key to that is sending out an invoice right away. If what you are doing currently for invoices isn’t quite working, then you could think about switching to using something that is cloud-based, as it can make creating invoices simpler. The simpler that it is, the quicker you will be able to get them sent out.
Get Customers To Pay On Time
Even if you are getting your invoices out early, if customers aren’t paying your invoices on time, then that can impact your cash flow. Although there are penalties that you can add on for late payments, it doesn’t help when you need the cash right there and then. So looking for ways to increase your cash flow can be done when customers pay on time. This is something that you only have so much control over. But here are some of the things that you could think about doing:
- To start off with, you should follow up your sent invoices with reminders. Start off with sending an invoice a few days before the invoice is due to be paid, if it has not been done already. Then continue with the invoice reminders on the day that it is due, as well as a few days later, if it still has not been paid. From there, you should call them, rather than email, but still send reminders. This can be done manually, but depending on what invoice system you use, some built-in reminders can be used.
- Who doesn’t love a discount? In order to get paid on time, or early, it is a good idea to give an incentive to your customers (often in the form of a discount). State on your invoices what you can offer, such as paying their invoice by a certain time, and then they get a discount. For example, if your standard terms are payment within twenty-eight or thirty days, then how about offering a discount of 10% if the invoice is paid within the first seven days of receiving the invoice. If they read that and are in a position to pay then, what is going to stop them? It can be a bonus for cash flow.
- Charging a late payment fee is common. Although you won’t benefit from the money right when you need it, when it comes in it can help the business cash flow. Have a policy and make sure that you stick to it. You could even specify the date that an invoice needs to be paid by, in order to eliminate any confusion of when thirty days is, for example. When late payment fees are stated, it will help you to look more professional, and will also incentivize people to pay on time.
- Invoice factoring is something else that you could consider when it comes to invoices and getting paid when you need to get paid. It is something to consider if the other strategies mentioned above don’t work. If you need cash right away, then invoice factoring could help. Invoicing factoring is all about selling off your unpaid invoices to a company, where they give you cash upfront in exchange. The factoring company, such as factoring on Solution Scout, will take a small cut of the money that is owed on the invoice. So when you are eventually paid by a client, they will be able to take a small amount of that. The good thing about it is that you can get cash up front when you need it, so you don’t have the stress of customers who aren’t paying. If you’re stuck, it could be the cash flow solution that can help you.
Reevaluate Expenses
As has been mentioned, cash flow isn’t just about the money that you have coming in. If you have lots of money going out, then that can hinder your cash flow just as much. If you want to help our cash flow, then a good place to start is by reevaluating your expenses. It is a good idea to look closely at your bank statements to see where the main expenses are. When looking at these, you need to decide if they are necessary, and if they are needed, then are there cheaper ways of doing things? It can seem difficult to cut out some expenses, but it can make a difference, if they aren’t really needed, or aren’t really needed all of the time.
