Decrease your accounts receivable
Receivables are money your business is owed. Any time you mail an invoice, the amount billed is a receivable until the funds are actually received.
Retailers, restaurants, and eCommerce sites typically have extremely low receivables since they’re typically paid with cash or credit card.
If your sales are predominately invoice-based or B2B, take a tip from retailers. Set up a system for taking credit cards; many businesses prefer the simplicity. If you have reps in the field, equip your employees with apps that allow mobile credit card processing.
Anything you do that makes payments easier, automatically decreases your accounts receivable and puts your revenues where they belong – in your account.
Look at your processes
Look at your internal billing processes and strive to send all invoices within one day of products or services rendered. After all, the longer it takes you to invoice, the longer it will take for you to get paid.
Also take a close look at your payment terms. Net-60 payment terms may make it easier to convince a customer to make a purchase, but that also means you’ll wait a long time for your money. Consider shortening the term, especially for new customers, and even providing a small discount for payments made within, say, five days.
While you may have to give up the 2 per cent discount, you’ll probably reap the benefits of having much quicker access to the remaining 98 per cent the customer owes.
While invoicing processes may sound tedious, it’s a key area that, with the right focus, can accelerate your cash flow and general accounting.
Increase your accounts payable
While you want to get paid as quickly as possible, to improve your cash flow you’ll want to pay as slowly as possible (within reason, of course).
So if your terms are net-30, set up automated systems that ensure you pay on the 28th of each month. When you’re negotiating new contracts, don’t focus solely on price – also try to get more relaxed payment terms. Many larger suppliers/businesses will be more amenable to longer term payments.
Of course your goal isn’t to take advantage of people. If your terms are net-30, then always pay within thirty days. An easy way to do that is to pay your bills using online banking. That way you won’t be late, and will never have to claim a cheque is in the mail. Your suppliers will greatly appreciate the reliability of your payments, leading to stronger relationships.
Always have a backup in place
Credit cards are useful for when you’re in a pinch, and a good alternative is a bank line of credit.
The key is to have your credit line in place long before you need it. Talk to your banker and explain that you’re setting up a contingency plan to manage any short-term cash flow issues that might arise.
Do that now, before you need it. The easiest time to qualify for a loan or a line of credit is when you don’t really need it.
And that way, if you ever do need a quick infusion of cash, it’s there.
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