Too busy working on business deals to worry about working on your cash flow?

If you ignore collecting on customer receivables long enough, you may end up worrying about another matter: closing your business.

When there’s no cash flowing in to pay the bills, you’re going to have to shut down. As business owners, we often get too caught up in selling our products and services. The result is that we forget to collect the money for those sales and properly manage cash flow, so that there’s sufficient money for paying suppliers, vendors and employees, as well as funding new projects.

When it comes to your overall business’ success, longevity and vitality, you can’t focus only on total sales. You also need to focus on the customer payment side of those sales dollars.

Here are five tips that can help you avoid negative cash flow:

  1. Run credit checks. Extended credit can be an asset to your business, helping to attract new customers and retain current ones. But a too-lenient credit policy can set you up for collection and cash-flow problems later. To mitigate risk, take the time to run credit checks on all new customers and make your credit policy, as well as its consequences, well known to them.
  2. Accounts payable. Negotiate longer payment terms with your vendors and contractors, so you can hang on to your money longer. The longer you can control your own cash, the better off your entire business will be.
  3. Have a solid collection process in place and enforce it. Be diligent about collecting from your customers. When your customers delay payments, they’re taking advantage of your cash. If you have team resources available, delegate the task of keeping track of receivables and customer follow-up to an employee.
  4. Offer early payment discounts. If you don’t want to wait for 30, 60 or 90-day net payment terms, then offer your customers a discount if they pay early. In your credit policy, make sure you have guidelines in place that state a customer’s eligibility for discounts.
  5. Factor your invoices. This allows you to sell your receivables to a factoring company. In return, you’ll receive cash immediately to keep your business running smoothly. This solution will help you cover the lapse in cash flow for short periods of time, while the factoring company takes care of customer collections.

Remember, business cash flow is not the same as business revenue. You can have a profitable business, but still suffer from a negative cash flow. Take the time to analyze which of these cash flow management tips will work best for your situation. Also, prepare a monthly cash flow statement to ensure that you don’t get surprised by an unexpected lack of cash to support daily operations. Implementing just one or two minor improvements in your account receivables strategy could have a major impact on your cash flow.

Contact our factoring company for a factoring rate quote today.