Improving cash flow is not about improving one “BIG” thing. It’s about doing a lot of little things consistently to manage inflows and outflows.
Here are my top 10 tips that will help any business:
1. Make preparing invoices your highest priority – If you’re like me you have plenty of fires to put out each day and sometimes billing can take a back seat to other urgent matters. Prepare your invoices on a daily basis (if possible). Doing your invoicing in big batches makes it more difficult because you’ll never seem to find a block of uninterrupted time. The sooner you get the invoice in your customer’s hands, the sooner you’ll get paid. Late invoices have a much higher chance of becoming uncollectible.
2. Before sending a bill to a new customer, find out who will authorize payment – By making sure the right person gets the invoice (at the right address), you can avoid unnecessary delays in the processing of your payment.
3. Include due dates on all invoices – This will help speed up payments from most customers. Without a due date, your invoice may move to the bottom of the accounts payable pile.
4. Send invoices separately from statements – While I strongly encourage sending a monthly statement detailing all outstanding invoices, do not wait to send invoices with the statement. Send out invoices immediately after a service is performed or a product is delivered. Most businesses will pay from the invoice as they are entered into their payable system, not from statements.
5. Email invoices – In order to get the invoice in the customer’s hands faster, email invoices to all customers you have email addresses for. Many customers are going paperless and do not want to receive paper invoices in the mail. Getting your invoice in their system faster will also speed up payment.
6. Reduce the grace period for late payment and increase the frequency of reminders – Everyone knows that the squeaky wheel gets the grease. Therefore, establish a frequent reminder system to help train customers to behave the way you want them to. The key is to train a customer when you first start doing business with them. Afterward, it can be difficult to break old habits.
7. Deposit checks immediately – This seems obvious, but you’d be surprised at how many businesses hold checks until they are recorded in the accounting system. Make copies of the checks before making the deposit. You can then do your accounts receivable posting later.
8. Pay your suppliers in chronological order – It may be easier to cut checks on a certain day of the month, but you’ll be able to preserve cash if you can spread out your payments as they come due.
9. Decrease inventory levels – Excess inventory ties up cash. By keeping absolute minimum levels of inventory and supplies on hand, you can retain cash in your business or reduce your loan balances and interest charges. Controlling inventory will have the biggest impact on improving cash flows in most retail or wholesale businesses.
10. Don’t forget to say thanks – Thank your customers who make their payments on time. The only time your customers usually hear from you is when their payment is late. Surprise them by sending a thank you note when you receive a timely payment. You will make them feel appreciated and insure that your bill will always get moved to the front of the line. One business even had a drawing for a trip for customers who paid their bill on time. Their collections improved dramatically.
Cash flow is the life blood of any business.
Some of the above ideas may seem minor, but every little thing that helps you increase your cash flow is important. Most small businesses with limited access to outside financing must rely on tight cash controls in order to finance the growth of their business.
LSL is committed to helping our small business clients succeed. That’s why we created the P3 Group. The P3 Group of accountants and advisors want to be your Peak Performance Partners by providing, compliance, performance and strategic services that will help your business reach its full potential and run smoothly with, or without you. Call us to schedule a free consultation and business performance assessment.
10 Ways to Improve Your Cash Flow PDF
