If your business is struggling due to tight cash flow, consider these eight simple operational changes that can make an immediate impact
1: Increase billing frequency.
If you typically bill clients once at the end of each month for work completed, try billing on the 15th and 30th instead. This will get money coming in faster matching up better with the expenses related to the work.
2: Require prepayment.
Instead of waiting until the end of a project or contract, require a portion of the payment up front. Ask clients to pay 50% of the fee at the beginning, then pay the remainder upon completion of work. Another option is to set milestones throughout a project and require clients pay as work is completed, rather than waiting until the end of a project.
3: Avoid paying bills the instant they come in.
Just because you have received a bill, doesn’t mean it is due that day. Set up standard payment terms for your business and pay your bills on a regular schedule within those terms (30 days is pretty standard).
Note: If a vendor is going to charge a late fee after 15 days, then pay their invoices within the 15-day period, or work with them to agree to your 30-day terms, but keep other vendors on your 30-day payment terms.
4: Set up auto-payments for receivables.
Auto-payments not only improve cash flow, but it will save you time – no more collection calls! Inform clients that you are going to require payments be made through an automatic ACH draft or credit card charge. This will ensure you get paid immediately, instead of waiting 30 to 45 days to receive payment.
5: Set a budget.
Set a budget and really use it to manage your business. Using a budget will give you a better idea of what money will be coming in and going out, and how to plan your cash flow around it.
6: Reduce client payment terms.
If you have traditionally given clients 30 days to pay, reduce your terms to 15 days to get money coming in earlier. This can be a great alternative to increasing billing frequency.
7: Charge late fees.
If clients are chronically paying late, send a notice that effective immediately, any unpaid invoices beyond terms will be charged a late fee. The late fee can be a fixed amount or a percentage of the bill.
Tip: Make sure you notify your clients of the change before you start adding late fees to their bills. Sometimes just a reminder of a late fee is all it takes for a client to start paying on time.
8: Ask vendors for extended payment terms for large orders.
If you need to make a large purchase for an upcoming client project or to improve infrastructure, ask your vendor to extend your payment terms for that purchase. Line the payments up with the revenue to be received related to the purchase.
Apply any of theses changes to your business, and you will see improvements in you cash flow.