Cash flow is the #1 reason why businesses fail. The timing of making payments to vendors and receiving payments from customers impacts how much money you have on hand to continue to pay your bills, your employees, and yourself. These tips will help you Reduce the Risks and improve your cash flow.
Limit payment terms to your customer unless the market dictates open terms –
Don’t just provide open terms to your customers if you don’t have to. Research what your competitors are doing.
Offer early payment discounts –
Terms like 2% net 10 offer a customer a 2% discount for paying within 10 days. This will bring your cash in quicker and improve your cash flow as well as minimize your collection efforts. Incentivize your customers to pay early.
Request up front payments –
Requesting upfront payments to cover costs and expenses is standard in many industries. Bringing in the cash in advance reduces your cash flow risk as you have the cash on hand to cover all costs and expenses as you expand your business.
Ask vendors for extended payment terms –
You should ask all your vendors for extended payment terms. Every day helps! If you don’t ask, you won’t know what levels of purchasing you need to achieve to receive extended payment terms.
Ask for down payments –
Similar to upfront payments, the standard in many industries uses down payments. Not only do down payments secure the order or service but they also create a positive cash flow by bringing in cash before any costs are incurred.
Immediately address issues with slow paying customers –
A slow paying customer is, in essence, extending his own terms. The squeaky wheel gets the oil. If you don’t contact the slow paying customers, they will continue to pay slow and continue to extend the terms. You need to contact them immediately and reset the expectations for on time payment.
Send customers statements –
Sending customer statements for invoices that are near due will entice them to pay invoices. Using statements will improve cash flow as well as reduce the cost of making collection calls.
Use Milestone billings –
Milestone billings may be used for large orders or large projects. Schedule your milestones to ensure you have a favorable cash flow. Make sure costs and expenses are covered in the early milestones. The final milestone for customer final acceptance should be a minimal amount as you don’t want disputes to impact your cash flow.
Look at receivables daily –
You worked so hard for the sale but it’s not really a good sale until you receive payment. Never neglect your receivables as it’s a proven fact that the older they become the harder they are to collect. Look at your receivables daily and chase the payments as hard as you chase new sales.
Use new technology–
Make your life easier and use new technology to ensure there is no delay in invoicing your customers. Automate your invoice process, schedule your invoicing, bill from your phone, etc… Find which technology works for your business.
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