Seven Strategies to Keep Cash Flowing
Cash flow is the lifeblood of every business.
All too often though, business owners fail to pay enough attention to bringing cash into the company as quickly as possible. Next thing they know, there is not enough money on hand to pay staff, suppliers and vendors.
There are several key things business owners can do to try and make sure this never happens to them. The idea is to be consistent with your approach to cash management, and keep the business in the best financial condition possible at all times.
Strategy # 1 – Only Deal with Quality Customers
It’s essential to deal only with quality customers who appreciate the value of your product or service, and are willing and able to pay promptly in return. A business with a cash flow crunch almost always fits into the 80/20 rule where only 20% of sales are coming from the 80% of customers who are the most difficult to deal with.
Strategy # 2 – Get Paid Up-Front Whenever Possible
Ask for payment up-front, or even C.O.D. Too many businesses offer terms automatically, when the fact is that many of their customers are more than willing to pay up-front.
Strategy # 3 – When you Offer Terms, Be Selective
Don’t offer payment terms to just anybody. Reserve terms for selected clients who genuinely need and deserve them, and are willing (and likely) to pay on time. Instead of terms, offer incentives to pay up-front. Given the fact that most companies that offer terms carry an A/R balance that is a significant percentage of their annual gross, a 5% (sometimes even 10%) discount for payment in advance can be a very wise exchange.
Strategy # 4 – Tighten Up Your Terms
Although many businesses offer 30-day terms as a matter of course, this delays the time it takes for the business to receive the money it is owed. Instead, when it’s necessary to offer terms – reduce them to 7 or 14 days max and follow up with overdue accounts promptly. Give customers a reasonable amount of time to pay, and don’t compromise your company’s financial health by volunteering to be your customer’s overdraft line.
Strategy # 5 – Negotiate Scheduled Payments
Another way to bring cash into the business faster is to break up payments for larger jobs into a down-payment and progress payments at specified intervals during the project. You should also consider charging the full cost of materials up-front if that’s how you paid for them. Then take weekly payments against labor and other costs with the final installment due at completion.
Strategy # 6 – Accept Credit Cards
Taking payment by credit card is a MUST. The digital age has made it so that anyone can arrange to take card payments. Set up your own merchant processing account to get the lowest fees, or pay a little more on each transaction with an online processing service anyone can qualify for. Encourage clients to pay with their card so the bank loans them the money instead of you. You can also arrange for pre-authorized debits to be made on the day your customer’s bill comes due.
Strategy # 7 – Know Your Limits and Stay Within Them
Never allow any single client to owe more money than you can afford to lose. Putting yourself in that position for a client – ANY client – potentially risks the viability of YOUR business. The decision to extend terms should be done with full awareness that the reason you’re extending terms is because the customer does not have the money to pay you at that time. The assumption should be that there WILL be delays or even possibly a failure to make payment in full. Consider the potential effect on your cash flow before putting YOUR money at risk.
By considering these strategies – and employing an abundance of common sense – business owners can protect themselves from the single biggest threat to their company. No competitor, competing product or service or even broad economic factors can damage your business faster than running out of cash because your clients aren’t paying as agreed.
For more information or to discuss your particular needs in this area with an
expert business coach, please contact me to schedule a complimentary initial
telephone consultation where we’ll provide a customized
12-point growth plan for your business.
Breakout Consulting, LLC
Dearborn, MI ∙ San Diego, CA