Improve Your Startup’s Cash Flow in Five Steps

Cash flowCash flow is a key component of any business. Making sales and delivering your products or services to customers is great, but it doesn’t amount to much if the money never arrives. Maintaining a steady flow of cash to your business is like maintaining a steady flow of blood throughout your body — it’s necessary to keep operating.

It is common for small businesses to have cash flow problems for a variety of reasons. Many customers will see a bill from a small business as less of a priority than bills that are due to large corporations, so you may get pushed to the bottom of the payables list. However, if you are going to keep your business going strong for years to come, you need to get past this hurdle. You won’t stay in business for long without a strong cash flow, so review these steps.

1. Get invoices out on time. Your customers can’t pay you if you never send them a bill. You might be surprised to learn how many businesses have cash flow problems simply because their invoices don’t get sent out in a timely manner. You should have an established protocol for sending out invoices (e.g., on the first of the month), and they should go out on that day without fail. Even sending invoices out a couple of days late can have a major effect on your cash flow for that month.

2. Be proactive. It is important to give your customers a standard period of time — 30 days is common — in which to pay their bill. During this time, you obviously won’t be taking any action to collect the payment. However, once that date has come and gone without payment, you should be proactive in collecting the money owed. Often all it will take is a simple phone call to get one of your customers to send over a check. These phone calls shouldn’t be hostile or accusatory. Just call the accounting office and ask for an update on the status of the payment. Hopefully that will get the ball rolling and get the money on its way.

3. Be flexible. As a business owner, you should be considerate of the challenges that other business owners face on a day-to-day basis. When you send out invoices, you should expect that at least a few customers are going to be having cash flow problems of their own, so they may not be able to pay you in a timely manner. When that happens, you should be willing to accept partial payments in order to bring in at least some of the money you’re owed.

4. Offer cash discounts. Offering your customers a discount for paying quickly is a great way to keep money flowing — especially early in the month when the payments may otherwise be slow to come in. Even a small discount off of the total amount of their invoice will be a motivator for the companies with cash available to send in their payment ahead of the due date.

5. Review purchasing practices. There are two sides to cash flow: the money coming in and the money going out. While it is great to collect money as quickly as possible, you will also benefit from reviewing the way in which you spend money. Are you buying supplies before you need them? Are you making payments in advance without receiving a discount? Solving your cash flow issues may be as easy as optimizing the way you spend money.

Tracking your cash flow and making key improvements is only possible when you have a clear picture of your whole financial situation.

(Source: TCA)