Any business owner can tell you that having a good cash flow in your business is essential as it provides financial stability. For small business, having issues with late invoice payments or failing to check the financial health of a customer or suppliers can impact your business and your cash flow majorly. It is important for business owners to understand the basics of cash flow before forming their own company and know ways of how to improve it once you are up and running.
Agree to your terms of sale before you accept the contract:
As an entrepreneur, you may get somewhat carried away when you start getting your first customers, but what you must do is focus on being aware and clarifying all the terms down before you make any sales.
You will need to make sure you know the intentions of your customer and close the deal once you know when and who will be dealing with the payments. For example, you will likely not want to close a deal with a customer and then after all the work is done you find out that they will pay on 60 days terms. This may have an impact on your business as you will need the capital to keep it running at the beginning and you cannot afford to make these mistakes.
Knowing the information before will help you plan and come to an agreement with your customer and therefore build a good reputation from them so they know that you will have specific terms before closing a deal.
Invoice promptly and accurately:
Invoicing as soon as there is a payment would be the best thing to do for your business, because if you leave all the invoicing for the end of the month your customers will experience no payment, and delays the revenue, thus not being beneficial to you.
Conducting the invoicing as soon as possible means that you’ll receive the payments on the correct dates and you can keep track of your expenses and income, therefore managing your finances better and having a healthier cash flow.
Something for you to note, is to make sure that when invoicing you double check to make sure that everything is correct. Any small details will require another invoice produced which delays the payment, and does you no favours.
Offer ‘pay now’ options so you can get your cash even sooner:
You don’t need to necessarily wait to receive your payment theoretically, when you can ask your customer to pay by their credit cards and receive the money there and then. This also means you’ll have to pay the card company a small fee although this will outbalance the benefits of having the cash sooner, so you can then plan ahead of what you can do with it or how to invest into the company which in turn improves your cash flow.
Another option could be having to invoice factoring, whereby a third party agrees to buy your unpaid invoices for a fee and then gives you a percentage of the invoice value. This is not something that every company can do, however.
Chase up unpaid invoices:
It is important as a business owner to keep your finances in check and keep up with the money flowing out and into your business. Leaving your invoices to the last minute will not benefit you or your company and this is because if people are not reminded and chased up on their payments they will tend to forget.
It is up to you to remind them with enough time so if there are any problems with the payments you’ll be able to fix them before the customer has to pay. Keeping a schedule or a spreadsheet of all the clients you currently have and marking the ones that have paid and the ones that didn’t with the dates of when their invoices are due will help you in keeping everything organized and make sure that you’ll be chasing up the clients.
By managing it this way, it will also build a good reputation and trust with your clients, which means they are more likely to keep to schedule.
Think ahead: plan for the known and the unknown:
Not everything can be predicted and this is why planning and having a contingency plan can save your business from experiencing any financial difficulties.
There are always different expenses that arrive throughout the business year, and some of them can be unexpected so you always have to be prepared to be able to take on these challenges.
Always have saved capital that you’ll only use in case of emergency as this will make sure you are always able to pay off anything that is due, without having to go into debt.
Planning on what you already know is essential for a business owner as it will structure how much capital they will need on a daily or weekly basis to make their payments. Also, it’s advisable to keep your cash flow forecast up to date will help you understand the different payments you’ll be making throughout the year and will help you plan on a business strategy to make sure your business will be successful.
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This post was written by Chris Beck