When it comes to your company’s cash flow, you may feel you’re at the mercy of your clients. You feel that on your end you’ve done everything possible to keep business booming— you’ve cemented deals, set your terms, and worked tirelessly to produce results. Now all that’s left to do is sit back and await payment; right?
Wrong. Unfortunately honest work is not always enough to keep your business up and running. You may face a decrease in demand, clients may default on payments, and a project you had thought would take a week to complete may drag on for months. Each of these scenarios leaves you with a cash shortage.
Thankfully, there are ways to work within these circumstances to speed things up. These 6 strategies will help you quicken your cash flow without spending a dime:
1. Shorten payment terms
The simplest way to receive cash sooner?—Ask for it. If you currently allow 30 days for payment, consider modifying your terms to 20 or 15 days. Most companies schedule payouts for the date you set as final on the invoice. Whether they send payment on the last day of the month or midway through is of little consequence to them, but it can make all the difference to your business.
If you’re hesitant to shorten terms because you’re already dealing with late-payers, reconsider. Those clients who wait until the last possible minute to send payment will do so regardless of the date on the invoice. Plus, you can count on those who have been timely in the past to meet your shortened terms and compensate for the delay of late-payers.
2. Break up payments
Though large projects come with bigger payments, they take longer to complete. If you’ve undertaken several long-term projects and your clients are not required to pay until the work is completed, you face an extended period of time with little money coming in. To combat this, ask clients to pay in intervals.
Doing so requires careful planning. If you can break each project into parts and determine roughly how long each will take to complete, you can schedule each interval payment at a time when you will have something to show for your work.
3. Provide supplemental services
If most of your projects require a chunk of time to complete, chances are you’re only pulling in major payments a few times each year. This is especially true for small or start-up businesses with fewer clients and sources of revenue.
To secure a more regular flow of cash, offer additional services to your clients. Say your business specializes in website development. Ask your clients if, in addition to the work you’re doing on their site, you can ease their workload by writing weekly blog posts for them. Charge per post and you’ll have money coming in every week.
In determining what supplemental service(s) to offer, keep in mind that it should be simple enough not to detract from your primary work.
4. Act to collect receivables
In a perfect world, once you performed a service you could simply sit back and wait to be paid for it. Unfortunately however, clients are human and sometimes neglect to pay at the scheduled date. Whether a client is simply too busy to remember your terms or desires to pull one over on you, the ball’s in your court to take action.
It’s your business that will suffer the consequences of delayed (or neglected) payment. So find out what’s going on—pick up the phone and call all customers who have missed their payment deadline. Confirm that they have your bill, and politely ask the reason for delay. In the case of a mail mix-up or a bout of forgetfulness, one simple phone call will be all it takes to receive payment.
5. Take credit cards
Some businesses refuse to take credit cards because they don’t want to incur service fees. And while you will encounter a charge for allowing customers to use this form of payment, it’s well worth it. By allowing clients to pay with credit cards, you’ll receive payment in just a few short days. Other transactions require a great deal of follow up work and clerical charges which amount to more than the service charge you pay for credit card use.
6. Be transparent
The most important thing to keep in mind when establishing and enforcing payment terms is that it’s always bets to be transparent. Clearly communicate your terms to clients so they have no excuse for missing deadlines. When dealing with late-payers, explain why you need the cash when you do. If you’re a B2B company, your clients will most certainly understand your position as they have likely dealt with these types of clients in their own transactions.
When acting to collect receivables, make sure to also communicate the consequences to the client for delayed payment. Whether it’s daily increases in interest or you withholding the finished product, make sure they know the consequence so they’ll have incentive to pay.
For more tips on how to combat cash flow problems, check out Eric V. Holtzclaw’s article for Inc.—Get Your Cash Faster: 7 Shrewd Tips.
If you’re a small business owner who doesn’t have the resources to devote to managing cash flow, consider hiring an outsourced accountant. Our start-up accounting and CFO services experts can provide you with information about this option.