Small business owners face many challenges in their effort to keep their company afloat. From ensuring their products and services are of the highest quality to meeting their clients’ demands all the way to keeping their employees happy, a business owner has a lot on their plate. However, while staying on top of all these obligations, they cannot overlook the importance of steady cash flow.
First of all, it’s important to know what cash flow is. Not to be confused with profit, cash flow is the net amount of all cash that is coming into and going out of a company. It is one of the basics that every business owner should learn about before starting a company.
If you are a small business owner that is looking for ways to maintain a steady cash flow, keep on reading for some useful tips.
Assess the risks on time
Some companies work without prepayments and offer their customers loans. If you choose this approach for your business, you need to accept that there is always a risk that your clients might be late with their payments. This is why you also need to learn to assess the potential risk before you offer your customers a loan. Have they been late before? Do they have a history of being late on a monthly basis? Take this into consideration when deciding whether you will grant them the same courtesy in the future. Consider asking for a part of the cost up-front or as soon as the job is done to protect yourself.
Send out invoices straight away
A practice you should implement immediately is sending invoices straight away. Customers will not pay if they haven’t been billed yet, so don’t let poor cash flow issues catch you off-guard and send out bills on time.
Go through the invoices carefully
However, when sending out invoices you have to be very careful. If you give your customers a confusing invoice, they could be prolonging payment. Therefore, specify what you are billing them for and the amount they need to pay. Furthermore, make sure the payment terms are clear. Set a date for the payment and explain what will happen if the invoice is not paid on time.
Look for ways to make payments easier
To encourage your clients to make a payment, you should make the process as easy as possible. For instance, if you still don’t accept credit and debit cards in this day and age, you are seriously behind and need to introduce this method. Then, you can also consider offering discounts to customers that pay ahead of time. Something else to think about is sending postage-paid envelopes along with the invoices to make payments faster.
Develop a way to collect your bills
No matter how easy you make it for the customers to pay, you might still run into some unpleasant situations. However, you need to make a policy for when things don’t go according to plan. For instance, you can remind your clients a few days before the due date that the payment is coming up. Then, if they are late, you can start by sending them a polite reminder or calling them. After that, you might have to take some measures that can be more effective. If you’re based in Australia, for example, you can rely on professionals for debt collection in Brisbane to get the money you are owed. In case all else fails, you always have the option of suing your client. To prevent issues like these, you should consider implementing a fee for everyone that is late with their payment.
Lower unnecessary costs
On the other hand, your company’s cash flow is not all about collecting payments you are owed. It is also about making sure you are not overspending. So, sit down and see where you can cut some costs because there are surely some unnecessary expenses that you have to pay on a monthly basis. Maybe you can find a more affordable office where the overhead costs are much lower. Then, perhaps you can sell some old equipment you no longer need. Finally, you might be able to spend less money on advertising if you review your marketing strategy and find a more cost-effective approach.
Stay on top of your own payments
Lastly, just like you don’t want your clients to be late, you also have to ensure you are on time with all your payments. It’s vital that you act according to the contract you signed so do your best to organize your budget so that you always have enough money to pay your suppliers even if your customers are late. You can contact your suppliers and explain that money is tight because your clients have not yet paid but don’t make it a habit.
Having a steady cash flow is crucial if you want your business to stay open. Implement these tactics and you should not have issues with this aspect of running a company.