Step 12 to Build a Better Business – Accelerate for Cash
If there’s one thing that is a constant concern for most small businesses, it is the availability of cash. Day to day fluctuations in cash flow can limit a business’s ability to respond to needs and opportunities as they arise.
The obvious way to ease short-on-cash woes is to sell more, so you can earn more revenue and bring more cash into the business.
But, another equally important, yet less obvious way is to increase how fast you receive cash into your business.
Think about it. the longer it takes you to receive an incoming payment or sum of cash, the longer you have to wait before it’s available to be used in the business. And often in a small business, cash availability is all about timing. Payroll could be due tomorrow, you’re a little short, and your biggest client just dropped their check in the mail yesterday. The bad news is, it’ll take 2 days for the check to get to you, and another day for it to post to your account. By then, you’ve already had to tell your employees that their paychecks are going to be late. It’s happened to many a small business owner, and the situation is never pleasant.
So, how do you speed up the flow of cash into your business’ coffers? Here are a few options to consider:
- Change Your Payment Terms - If you bill or invoice your customers, you could change your terms to cash-on-delivery, or you may give customers an incentive to pay invoices early by offering them an early payment discount. You might also institute a deposit policy, requiring that your customers pay a percentage of the total amount up front.
- Invoice More Quickly – Send invoices out earlier. If you’re finishing work for a customer on a Friday, don’t wait until Friday or later to send out the invoice. Send it on Wednesday or Thursday. Most of the time, you have already agreed to the product or service specs and cost with the customer. If anything changes, you can always submit an amended invoice to the customer for any additional charges. You can use an online service like PayPal, Zoho, or Fresh Books to send invoices via email for free or a for a low monthly fee, or you can get software like Quickbooks Invoice Manager for about $40. The folks over at Freelance Switch have a good article on other online invoicing tools. Many of these tools offer automatic recurring billing and payment processing, which is another option for increasingthe speed of cash into your business.
- Eliminate Checks - Checks usually take longer and are more expensive to process than credit cards and cash. But if you must accept payments and checks by mail…
- Consider A Lockbox - With a lockbox, instead of payments coming to you and you taking them to the bank, payments go to a secured post office box checked by a bank employee who processes the payments as they come in. A general rule of thumb is: if you have more than $1,500 in mailed payments per month, a lockbox might be a wise choice. Check with your current bank or one of these lockbox providers to investigate your options.
- Factor Your Receivables - Factoring is a transaction in which you sell your receivables (pr payments due from customers) to another company for immediate cash. The third party will typically give you 60-70% of your total recievable amount up front. They are then responsible for collecting payment from your customer. Once they have received payment, they send you the balance of the original receivable amount minus any processing fees. Factoring is most suitable for businesses with high dollar or a large number of receivables and customers who are very likely to pay. Read more about factoring here.
photo credit: NathanFromDeVryEET (Flickr)
Related Posts
- Step 27 to Build a Better Business – Build and Monitor Your Business Credit
- Step 15 to Build a Better Business – Appreciate Your Rollover Customers
- Step 17 to Build a Better Business – Count What Counts
- Step 16 to Build a Better Business – Set Aside One Day a Week
Sage Small Business Solutions provides inexpensive infrastructure solutions for small and microbusinesses. If you're interested in improving your small business, or implementing techniques discussed in this article, find out how Sage can help.
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Hi there! I’m Kisha Solomon. I’m a writer, business advisor, and the owner of Sage Small Business Solutions.
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