This article looks at three simple and effective ways to increase your small business cash flow. More specifically, these methods help you turn accounts receivable into cold cash that your small business can use today.
Some of these cash flow strategies may take a while to set up, but you will find that the resulting cash will be well worth it. By implementing these strategies, you’ll join the thousands of small business owners looking for clever ways to get paid sooner.
1. Make it easy for your customers to pay
It is logical that your clients pay you before if you make it easy for them. That is how. First, when you establish a relationship with a customer, state your payment terms and options upfront. Let your customers know if you accept cash, checks, credit cards, and online payments.
Second, start accepting credit cards. As your clients begin to experience cash flow problems of their own, they will want to manage their cash flow by using credit cards to pay for services. By accepting credit cards, you’ll increase your chances of getting paid on time. These days, small businesses from plumbers to accountants are accepting credit cards and seeing an increase in cash flow as a result. Although you’ll have to pay 1-3% to a credit card processor, the increase in your small business’ cash flow makes the fees worth paying. Remember that 90% of business bankruptcies are due to cash flow.
Third, consider accepting payments online through services like PayPal, Verisign, Quickbooks, or Authorize.net. Your customers are just as busy as you are, and by allowing them to pay online, you allow them to handle payment at a convenient time, which may not be during regular business hours.
2. Don’t be afraid to ask for your money
Studies show that friendly reminders like “Did you get my bill and when can I expect payment?” can significantly increase payout rates. Before you start requesting payment, make sure you have made your payment terms clear at the beginning of your relationships with your customers. Then, use software to track the age of various accounts receivable so you can easily list customers who are late in paying and start calling with friendly reminders. Finally, if necessary, consider using an outside collection agency for extremely delinquent accounts. Use this option with caution, as it may have a negative impact on your business relationship with your delinquent customers or others who know those customers.
3. Balance your customer base for steady cash flow
Depending on how you typically bill your business for products or services, you can create a steady flow of cash into your business by using different payment structures for different customers. For example, if your business is seasonal or experiences cash flow fluctuations, consider moving some clients to a retention basis so that monthly cash flow is more stable. With a down payment, you offer your customer a certain number of products or services for a fixed fee per month. To encourage customers to switch to this method, consider adding a few additional products or services to the mix or offering a small discount. While this might reduce your profit margin a bit, you’ll get the benefit of more cash every month.
It may take some time to implement these strategies. For example, if you decide to accept credit card payments, you will need to establish your business with a merchant services company. Similarly, if you choose to move some of your customers to a retention base, you’ll need to spend some quality time with those customers to persuade them that a retention is a win-win solution. However, you will find that if you invest this time and effort up front, your bank balance will reflect a much healthier cash flow, which is crucial in today’s tough economic times.
Do you have some clever ways to increase cash flow in your small business? Do you mind sharing?