You might be too busy working on new business deals to worry about working on your cash flow. Unfortunately, if you ignore this high priority aspect of your business for too long, you may wind up worrying about a number of other issues, from bill payment struggles to bankruptcy.
Don’t get so caught up in selling your products and services that you ignore this business essential. Ensuring consistent cash flow involves two things: 1) collecting on invoices and 2) properly managing cash flow, so that there’s sufficient money to pay suppliers, vendors and employees, as well as fund new projects.
Here are five tips that can help you ensure a smooth and timely flow of cash into your business:
Run credit checks
Extended credit can be an asset to your business, helping to attract new customers and retain current ones. But being too lenient with your credit policy can set you up for payment collections and cash flow problems in the future. To lower your risk of doing business with delinquent customers, thoroughly check the client’s credit background and make your credit policy, as well as its consequences, clear and well known to your customers.
Have a solid collection process in place and follow through with it
Make sure to invoice promptly — as soon as the project is complete or products/services are delivered and be diligent about collecting from your customers. When your customers fail to pay you on time, they’re taking advantage of your business and cutting off your cash flow. If you have team resources available, delegate the task of keeping track of receivables and customer follow-up to an employee.
Negotiate contracts and payment terms
In B2B deals, there is always room for negotiation. If you don’t negotiate vendor contracts, then you’ve already overpaid. Always come back with a fair counteroffer. Ask vendors for a 5 to 10 percent reduction off the top. If they decline, then you have the option to seek out new vendors that offer more pricing flexibility. Also, negotiate longer payment terms with your vendors and contractors, so you can hang on to your money longer.
Time every payment
It doesn’t hurt to ask your suppliers if they give discounts for early payment. But if they don’t, then pay your bills, including utilities, taxes and suppliers, as late as possible without incurring a fee. Delaying payment as long as you can is to your advantage: the longer your money is under your control, the longer it will earn a return for you, rather than your suppliers and service providers.
Get your invoices paid quickly with invoice factoring
If an invoice hasn’t been paid within 90 days, then it most likely will not be paid at all. Any invoice payment delay could cripple business operations. A solution to customer payment delays is invoice factoring. A factoring company will purchase your customer invoices so you don’t have to wait 30, 60 or 90 days for payment.
In short, factoring gives you immediate cash to keep your business running smoothly. This solution will help you cover a lapse in cash flow for short periods of time, while the factoring company takes care of customer collections.
Invoice factoring is very common in industries where long receivable times are part of the business cycle, such as automotive supply, trucking, freight brokers, staffing, manufacturing, technology, printing, oilfield, security, furniture, apparel and other service-based businesses.
With the inclusion of customer payment collections, worry-free loss mitigation and helpful money-saving programs, factoring gives you additional “peace of mind services” that also benefit your business.
If your company regularly generates commercial invoices and you’re having cash flow issues, your business could be a candidate for factoring.
Cash flow is king
When you’re a small business owner on a tight budget, it pays to be mindful of cash flow.
When it comes to your business’ overall success, you can’t focus on sales alone. You also need to focus on the customer payment side of those sales. Use these cash flow tips and prepare a monthly cash flow statement to ensure that you don’t get surprised by an unexpected lack of funds. The more prepared you are to manage cash flow, the better off your entire business will be.