Updated: Jan 17, 2022
Cash-flow is one of the most challenging aspects of business ownership. Your cash flow indicates if your business is being poorly managed or is in financial trouble. If you aren’t being proactive about collecting payments from your clients, you could be killing your cash flow.
Eighty-five percent of small businesses fail because of passive approaches to collecting payments and managing cash. If your clients are not clear about your terms and policies, you could be one of those vendors who are the last to get paid.
BEING LAID BACK DOESN'T PAY---You will get taken advantage of.
Planning ahead can improve your cash flow. You do not have to turn to costly methods like loans. Here are some proactive options:
#1 Forecast your cash
Forecasting is important to every part of business. You will be able to foresee shortfalls and potential dangers to the business. You can also estimate surpluses that will help you execute new projects. Forecasting helps us to understand where the ‘big costs’ are and how frequent they need to be paid.
#2 Be Clear with your Customers:
Set clear late payment policies. A 5% late fee after five business days is the norm.
If you have a service-based business, include a work stoppage policy after a payment is more than 30 days past due.
Create a timeline for invoicing, payment reminders, and collection phone calls if past invoices aren’t paid.
Accept credit cards that discount each sale by 2 percent to 5 percent.
Consider offering incentives like discounts, BOGOs (buy-one-get-one), or rewards for valued customers who make early payments and referrals.
#3 Improve Your Bottom Line
Offer to pay your suppliers early-- if they're willing to give you a discount in return.
Open a high end savings account
Use electronic payments
Improve your inventory--be objective (not emotional) about your products. If they are not in demand them at a discount /or discontinue them.
Cash flow is necessary because it later becomes payment for things that will help you operate your business and cover expenses like rent, debt payment and employees. Positive cash flow shows that your business runs smoothly and that it can provide returns on investments and generate enough cash to sustain and grow your business.
Not sure how to figure out your cash flow needs? Let us help..Schedule a chat with us today or register for our upcoming webinar Changing the Way Small Businesses Get Paid on January 27th!