Cash flow is truly the lifeblood of any small business. So when tight credit starts choking your cash flow, it's important that you act right away to remove the blockage and get your business's cash flow flowing again. Here are five quick things you can do to improve your small business's cash flow.
1. Invoice promptly.
Many small businesses have a regular billing routine such as invoicing clients and/or customers at the end of the month - leaving money that could be sitting in their bank accounts improving their cash flow in someone else's pockets! Instead of waiting to invoice, bill right away when the job is completed. If your business involves billing for hours of time, invoice twice monthly instead of once to get some of your money coming in sooner.
If you run a Canadian business, How to Invoice provides details on how to invoice for specific tax situations, such as GST, HST and/or PST.
2. Ask for partial payment up front.
Instead of waiting to invoice until a job is completed, ask for a percentage of the bill to be paid before the work starts. For instance, you might charge 40% of the bill as a retainer or proof of good faith with the remainder due on completion of the task. Or break the bill into thirds, asking for a third before work starts, a third while the project is ongoing and a third upon completion. It's a common business practice and one you should be taking advantage of if you can.
3. Give a reward for quick payment.
Money you are owed but don't collect is a real cash flow drain. You can get some customer and/or clients to pay immediately by offering them a discount if they pay within a certain time frame, giving your cash flow a nice boost. A 2% discount for paying within ten days is the most common scenario.
4. Go after receivables.
Make it a regular practice to review your receivables and identify accounts that are late paying or overdue. Then make the phone call or send out the letter or email requesting payment. Some clients and/or customers just need reminding. And when reminding doesn't work? Time to put the collections agency to work.
5. Pay bills only when they're due.Check your suppliers' payment terms and determine when payment is due (30, 60 or 90 days). Then wait to pay until whenever the due dates are rather than paying right away. Timing your business's bill payments this way will help keep your cash flow flowing, as it will keep the cash in your business longer.
These are just some of the things you can do to get your cash flow moving again - some of the quicker, easier things. The other things you can do can take longer to implement but are well worth doing, especially if you are having or anticipate having cash flow problems.
Cash Flow Management Tips to Keep Your Cash Flow Flowing explains some of these cash flow management strategies that are particularly useful.