If you’re managing a growing company then improving your cash flow will most likely be a big concern. The delay between issuing an invoice to a client and receiving payment can be stretched out by clients running your payment terms to their maximum. If the time between when you have to pay suppliers and employees and the time when you collect payment from a customer isn’t adding up, then it might be time to think about improving your cash flow.
First, try to prepare cash flow plans for next year, next quarter or even just next week if you’re really in trouble. These will just be educated guesses, but it can be useful to know what’s on the horizon. Combine the cash you’re expecting to receive from whatever source with the cash you’ll need to spend, including things like rent, bills and wages. Hopefully you’ll be able to see when you might have cash flow or funding gaps that need to be filled.
So now you’ve got your cash flow projections, how can you go about improving your receivables?
1) Offer discounts to customers who pay their bills on time. This will mean you have cash on hand faster, lessening the gap between customer payment and when you need to spend that same money.
2) Ask customers to make deposit payments at the time orders are taken.
3) Require credit checks on new non-cash customers. This is a basic precaution so you know what you’re getting in to with a new client.
4) Get rid of old, outdated inventory for whatever you can get. This makes sure you’re not holding on to dead stock but are getting some sort of return for it.
5) Issue invoices immediately and follow up with a phone call if payment is slow.
6) Track accounts receivable to follow up slow paying customers. Instead of refusing to do business with those who pay slowly, you could insist on cash on delivery methods to make sure you get paid.
7) Look into invoice finance services which can give you a quick cash injection and minimise late payment problems.