Cash flow is critical for business success. Effectively managing cashflow can make or break businesses of any size, especially startups. When you are able to regularly generate cash, you are in a much steadier position and you have a higher buying power. Your main duty as a business owner is simple: make the inflow of money greater than the outflow. This cash supply allows you to take advantage of vendor discounts from timely payments, invest in new opportunities and quickly pay for unforeseen emergencies. Here are six hacks that can increase the cash inflow without changes in your business strategy or operations!
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1. State clear payment terms.
Ideally, you should request a payment from your client before delivering your product or your service. Sometimes, a 5% or 10% discount on the invoice is a strong incentive for a client to pay upfront. Asking for a deposit is also a good idea, especially if your service is provided over a prolonged period of time and the asking for a full payment beforehand isn’t sensible.
2. Invoice your customers ASAP.
Offering credit terms to your clients is a double edge sword. This practice does attract more clients and therefore increase sales, but the cash flow can suffer. Quickly invoice customers after the sale to have the credit terms kick in from the date of the invoice. If you delay the invoice until the end of the month, then you are extending their credit terms an extra say, 20 days - and that’s 20 days of no cash flow!
3. Deposit payments ASAP.
If you're getting paid in checks or cash, deposit the payments as soon as your receive them, instead of cumulating sums of money to deposit at the bank one or twice a month. Not only does this practice improve cash flow, but it also reduces the risk of losing payments and avoids the hassle of contacting the clients for a check reprint. Moreover, deposit the payments with the teller rather than using an ATM machine, so that checks can clear faster.
4. Invoices should have clear and detailed descriptions.
Clients that are unsure of the services you provided often dispute invoices which results in a payment delay. Adding a detailed description of the services rendered in your invoices reduces the probability that the client will trigger a dispute. Don't be afraid to include finer details if you know they've created controversy in the past!
5. Don’t limit your payment options.
Modern technology increases the payment options you can provide your customers. The added choice and flexibility makes it easier for clients to pay on time. Moreover, the convenience of some payment methods, such as mobile credit card reader apps, may incite clients to even pay on the spot.
6. Use reports to keep track of outstanding payments.
Use reports to reconcile payments and track outstanding balances in order to quickly collect money from delinquent accounts. Quickly spotting clients who owe you money increases the chances of collecting the dues, thus increasing cash flow.
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With these six methods you'll be able to generate more cashflow and also keep organised accounts. Stay on top of your books - it's worth it!
Diana Rapeanu CPA, CMA