Cash Flow:
Five Ways to Speed Up Small Business Cash Flow
At one
point or another, almost every business runs short of cash. Whether due to
normal fluctuations in demand or an unexpected decline in sales, cash
flow shortfalls are the bane of every company, and are responsible for
sleepless nights for many business owners.
Yet,
there are a number of simple ways that you can reduce your dependence on
your company’s line of credit and increase the cash flow that you need. Here
are five no-cost methods to try:
Increase
Receivables Collection Efforts:
This is the easiest and fastest way to generate cash but, surprisingly,
most companies do a terrible job of it. Start by calling all customers
whose invoices are between 25 and 30 days old to ensure that they have
your bill and to find out when it is scheduled for payment. These are the
easiest collection calls to make and they often result in faster payment.
And, it allows you to quickly rectify problems that may delay your check.
Get
Payment In Advance:
Another often overlooked technique is to simply ask customers for advance
payment, or for a partial payment for goods and services. This approach is
especially valid with large purchases, or on work where you’ll incur
significant expenses before being able to deliver the final product. Most
customers will agree to such a request without asking any questions.
Invoice
More Frequently:
Many companies send out invoices once a month, typically at the end of the
month. That gives buyers who purchased early in the month up to 30
additional days to play with your money. The frequency with which you
prepare bills will depend on your business, but most companies can justify
preparing invoices at least weekly.
Shorten
Your Payment Terms:
Most accounts payable departments schedule your payment based on the terms
printed on your invoice. If you provide 30-day terms, don’t expect to get
paid before then. However, many customers won’t even notice if you change
your payment terms to 15 days, or request payment upon receipt of your
invoice. You’ll still have to nudge the same “slow pays,” but your good
accounts will probably process your invoice more quickly.
Accept
Credit Cards For Payment:
This isn’t really a no-cost method, since you’ll have to pay a service fee
to the bank that clears the transaction. But, you’ll get paid within days
and eliminate much of the clerical support required to follow up on
payment. Those savings alone often more than offset the service charges.
And, your customers might even thank you for the frequent flier miles they
pick up by using their credit card.
There
is, of course, one other important way to quickly generate cash for your
business, and that is to increase your attention to sales. In all but a
handful of cases, increased sales will make cash flow problems disappear.
William von Achen is president of Strategic Management Resources, an
executive coaching and management consulting firm offering advice and
counsel to business owners and senior executives. For more information
visit our web site at
www.smrweb.com .
