Cash flow is a key element in determining business success. Effectively managing your cash flow is important for businesses of all sizes, including start-ups, because the ongoing capability to generate cash puts you in a more steady position with higher buying power.
Your main duty as a business owner is to ensure the inflow of money is higher than the outflow in order to benefit from a steadily growing cash supply. This cash supply allows you to take advantage of vendor discounts from timely payments, to invest in new opportunities and to quickly pay for unforeseen emergencies.
Here are six hacks that can improve cash inflow without changes in your business strategy or operations.
1. State clear payment terms
Ideally, you should request a payment from your client before delivering your product or your service. Sometimes, a 5% or 10% discount on the invoice is a strong incentive for a client to pay upfront. Asking for a deposit is also a good idea, especially when you provide your service over a prolonged period of time and asking for a full payment beforehand isn’t sensible.
2. Invoice your customers ASAP
Offering credit terms to your clients is a double-edge sword. This practice does attract more clients and therefore increases sales, but cash flow can suffer. Quickly invoice customers after the sale in order to have the credit terms kick in from the date of the invoice. When you delay the invoice until the end of the month, you are essentially extending their credit terms an extra say, 20 days, and that’s 20 days of no cash flow.
3. Deposit payments ASAP
Deposit payments as soon as your receive them instead of cumulating checks and cash to deposit at the bank one or twice a month. Not only does this practice increase cash flow, but it also reduces the risk of losing payments and prevents the hassle of contacting clients for a check reprint. Moreover, deposit the payments with the teller rather than using an ATM machine, so that checks can clear faster.
4. Invoices should have clear and detailed descriptions
Clients that are unsure of the services you provided often dispute invoices, which results in a payment delay. Adding a detailed description of the services rendered in your invoices reduces the probability that the client triggers a dispute.
5. Don’t limit your payment options
Modern technology increases the payment options you can provide to your customers. The added choice and flexibility makes it easier for clients to pay on time. Moreover, the convenience of some payment methods, such as mobile credit card reader apps, may incite clients to even pay on the spot.
6. Use reports to keep track of outstanding payments
Use reports to reconcile payments and to track outstanding balances in order to quickly collect money from delinquent accounts. Quickly spotting clients who owe you money increases the chances of collecting the dues, thus increasing cash flow.
It is important to note that the financial information provided in this blog is for informational purposes and not for the purpose of providing specific accounting advice. You should contact an accountant to obtain specific advice tailored to your business needs.