Cash flow crisis hits most small businesses at sometime in its life. This time of the financial year money issues hits small businesses the most, but actions can be taken to assist with cash flow management.
1) Provide a customer the invoice immediately upon delivery of goods or services.
If you wait to prepare your invoices monthly than you may be adding as many as 30 extra days to your cash flow conversion. The goods have gone, the service actioned but you have not been paid. Who is fitting that bill?
2) Offer customers a discount for paying on the day they receive the goods or service.
3) If your service is going to take some time, request a work in progress payment where the customer pays a certain percentage of the total invoice up front before the job begins. You do not want to be out of pocket for expenses.
4) Track your past due accounts and actively call customers to collect overdue payments. Set up a system to send out statements and letters to the customers explaining the steps that will be taken if the account remains unpaid. This may include percentage penalties or transfer to a collection agency.
It is important to monitor your cash flow and shorten the flow conversion so you can bring money into the business quicker. A cash flow gap occurs when the cash flowing into your business doesn’t keep up with the cash flowing out. We all know that cash can flow out of the business quickly with all sorts of expenses from materials to permits and wages.
Quote: “The best things in life are free but you can tell me 'bout the birds and bees. Now gimme money”—The Beatles
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