Misunderstanding Cashflow can make or break even the best small business.
Think of it this way. You’ve worked out your monthly costs – and they are more than matched by your sales. Meaning you are in profit, right? Everything’s just peachy.
But if you focus solely on the sales/costs equation you can find the day-to-day reality is a bit less comfortable. For instance, if you extend credit to customers by invoicing them and allowing a set number of days – say 30 or 60 – to pay then there will be a gap between a sale being secured and a product delivered and the cash from that transaction arriving in your bank account. Meanwhile bills still have to be paid.
And if the money coming in and money going out of the business are not aligned, you can find yourself in the frustrating position of hitting or exceeding all your sales targets while finding there is little actual cash in the bank. Suddenly it’s a real struggle to pay those bills. Put simply, your cashflow is in trouble and your business is at risk.
#1 Keep your eyes open and on your accounts
As boring and obvious as this sounds, it really needs to be mentioned. Stay on top of your books and make sure they are as accurate as possible. Updating your records as frequently as possible will help you know where you stand and set the tone for the rest of the tips.
#2 Invoice quickly and keep your payment terms short
If you take a while to issue an invoice, you set the tone that administration is not important and thus greatly diminish the chance of prompt payment. Administrative task can slip down the list of priorities in a small business focusing on creating new opportunities, but it is crucial you see through the opportunities you have already created – make sure you issue an invoice with a clear ‘pay-by’ date as soon as a sale is confirmed. The quicker you invoice the quicker you’ll be paid. Make sure you are Invoicing digitally so that there is no delay in snail mail.
#3 Make it easy to get paid
Making payments should be as easy as possible for your customers. The easier it is, the quicker they’ll pay. Offer multiple payment options.
Online payments are a must – they’re instant and easy for the customer. A crucial factor with online payments is to eliminate the surcharge on Credit Card payments. Take this expensive away from your clients and they will love you for it. Its a tax deductible banking expenses and a drop in the ocean compared to a late payment and the bad payers nightmare..
** This is our golden nugget tip – It has the largest impact on improving your cashflow
#4 Invoice for a percentage of the fee upfront
Depending on the size of the project you can ask for anything from 30% to 60% upfront. If you have a solid reputation your client won’t think twice in paying you. This also helps weed out the prospective clients who are wishy washy and don’t commit to the project. If he or she’s not willing to pay you a reasonable upfront payment, they are likely wasting your time. You could offer a warranty (minus transaction fees) for upfront payments in case your client decide to cancel the project before you start doing any work.
#5 Be fair and direct with your customers
There’s no need to be too lenient or a pushover. Just be clear about your terms in the beginning. Although it can feel nerve-wracking, there’s nothing wrong with asking to be paid within a reasonable amount of time for quality work. Your customers know that for you to continue working, you need to be paid.