Maintaining positive cash flow can be challenging for small businesses no matter how long you’ve been trading. The cash flowing into your business compared to your costs going out. Particularly if your business is seasonal, such as the hospitality industry, or trades businesses that need to purchase materials and pay wages before invoicing the completed project.
Cash flow comes under more threat when you are waiting for clients to pay their invoices. One or two chronic late payers chew into your time and money when you have to chase them down; if reliable clients also fall behind one month, the result can put your business at risk.
So if your business will benefit from getting paid faster (and whose wouldn’t!) check out these tips so you can avoid a dangerous cash flow crunch.
Stagger your schedule
By billing some of your clients mid-month and the rest at month-end, you can facilitate a steady stream of ongoing cash flow rather than having to wear the costs of running a business throughout the month until revenue comes in.
Invoice quickly – and accurately
As soon as you’ve completed a job or the scheduled billing day has arrived, send your invoices straight away. Automating your invoicing with a cloud-based accounting solution such as Xero will eliminate the need for time-intensive manual billing, help avoid costly human errors, and ensure you never fall behind.
Set a deadline
Make it clear on every invoice when payment is due – for instance, “Payment due on receipt” or “Payment due within 30 days”. Ideally, you’ll have outlined your payment terms in writing, including any penalties for late or non-payment, before commencing work with a client. Summarize your terms on each invoice as a reminder.
Set payment policies
Why not offer a discount to customers who pay early? A 5% reduction on invoices paid within a week will do wonders with your cash flow, and your customers will be grateful for the discount. Similarly, introduce a 2% penalty for every week overdue. Outline on your invoice the different amounts your customer will owe, depending on the date they choose to pay.
Be willing to negotiate
Sometimes a client intends to pay but needs a bit of time to come up with the cash. Be open to negotiating a payment plan; it’s better to receive payments in small increments than not at all. However, it’s probably not good for business to get in the habit of doing this on a regular basis. You don’t want to be waiting for an extended period of time to get paid for the job you completed months ago.
One of the best ways to encourage customers to pay on time is to maintain a friendly relationship. It’s a simple fact: when your customers feel a connection to the person behind the business that serves them, they’ll be more inclined to take care of their invoices quickly.
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