Enabling healthy cash flow is often key to running a successful business. This often gives you better control over your finances and allows you to avoid problematic situations. However, with 61% of small businesses struggling with cash flow, it can be difficult to know where to start as a business owner.
With that in mind, here are some top tips to help you improve cash flow in your business – before the end of the year!
What awaits you in this article:
Set clear expectations about payments
Payment delays are one of the most common forms of liquidity bottlenecks. However, they can often be remedied by considering your clients/customers’ expectations in advance. For example, before carrying out work for them, you should discuss:
- The total cost of your services
- Payment date(s)
- Payment plans
- Interest charges for late payments
This way, your customer awaits your invoice and can process payment quickly and efficiently without any further questions.
Offer payment plans
If you are financially able and trust your customer to pay the entire amount, you may also want to set up a payment plan instead of sending the entire invoice in full. This makes it easier for your clients to cover the costs of more expensive projects while ensuring you are fairly compensated for your work. For example, you might charge an upfront fee and then several smaller payments at monthly intervals.
If you are considering this approach, you should do a credit check on the customer beforehand to ensure you receive all the money over time.
Don’t be afraid to chase late bills
Typically, you should expect to receive payments from customers within two weeks of sending an invoice. Still, many business owners are hesitant to catch up on late invoices for fear of damaging their relationships with their customers. For example, you don’t want to give the impression that you don’t trust the customer to pay, even if their current behavior is concerning and they have generally paid on time in the past.
While these relationships are important, it is equally important that you get paid for the work you do. Therefore, you need to learn how to collect outstanding invoices without damaging customer relationships. For example, this can often be as simple as sending a polite follow-up email asking when you can expect to receive payment.
Simplify the payment process
Making it easier for your customers to pay their bills can also improve cash flow, allowing them to process their payments in just a few minutes (or even seconds). One way to achieve this goal is through payment API integration. This is a process that allows you to integrate a payment hub platform into your website, mobile app or point of sale products so that customers can pay quickly and efficiently.
Charge interest on late payments
Whether you want to take care of your finances during a crisis or simply want to encourage on-time payments, charging late fees can also help improve cash flow in your business. Of course, you need to find out about the legality of this process in advance, as the amount of interest you can charge (and when) may vary depending on your location. However, as a rule of thumb, you can start calculating interest 30 days after the invoice date.
Create incentives for early payments
While charging interest for a late payment means a customer is unlikely to make the same mistake twice, there are other ways you can incentivize on-time payments. For example, you may want to offer discounts to customers who pay in advance or on the same day the invoice is sent. This can save you a lot of time and stress when it comes to tracking these payments.
Reduce your expenses
Reducing your monthly or annual expenses will also improve cash flow by ensuring you have more money set aside to reinvest into business growth. Currently, one of the easiest ways to reduce your expenses is to have your team work remotely or develop a hybrid work schedule. This means you can avoid renting an office/workspace altogether or at least reduce the size. Not only will you pay less in rent, but you will also avoid utility bills and other expenses.
