Six Important Tips To Improve Your Business Cash Flow

Well, yes, there is that fine point to consider where, once the customer has happily used your product or service, you have to collect their money. It’s good not to forget that step.

While a large business has the benefit of having enough economic and legal clout to not have to worry, a small business or entrepreneur is stuck with no option besides to pursue it themselves through small claims court. If you find yourself doing that too much, it will become a shortcut to failure. Here’s some tips on preventing that awful day from ever drawing nigh:

1. Wherever possible, ask for a retainer or a down-payment before starting work. You can even have a third party hold the funds in escrow, if that’s what makes the client happy. Doing work on spec is one of the chief causes of income drain to small start-up companies.

2. Set your billing sooner rather than later. So many companies give leniency of 60 or even 90 days to pay the tab - what for? The philosophy is that allowing such generous payment terms gives the client more time to get the money together, but it also gives them an excuse to quietly disappear or come up with an excuse to get an extension. 30 days is the longest an invoice needs to be outstanding.

3. Try to finance the flow of cash so that you are paying your vendors for next month’s supplies out of the income from this month. Never be in a position where you have to accept a contract, then borrow money for resources so you can complete the project.

4. Establish a solid collection process, with an efficient, automated system. You want invoices to be printed and sent automatically, and notifications of billing status placed before your eyes every day. You may think that as a small business owner, you couldn’t possibly forget about a delinquent credit, but it does happen! Besides, you want a paper trail in case you do have to take it to a third party for collection.

5. Keep an emergency fund in savings. Use this to sustain your business during the time that you are waiting to be compensated by the customer, should they be delinquent. Remember, you’re not a big fish like a multinational corporation; one small wave can sink your little boat.

6. Finally, you could always consider handing your invoices over to a third-party for collection to begin with. It’s easy; just sell your invoices to a billing company, which pays you in full up front with a small commission taken out. Then collecting from the client is their problem, not yours. This may seem like an extreme case, but given the choice between receiving 95% of a payment today or waiting to stew six months to see if you get 100% of it or nothing at all, which would you choose?

Bill Darken often writes and works closely with Small Business Answers and can help with more information on small business plans. Or if you’re looking for small business loans, there’s help at small business finance. Some people don’t know about small business factoring as a way to finance your business. It’s becoming more and more popular and is worth checking to learn more about factoring for small business.

One Response to “Six Important Tips To Improve Your Business Cash Flow”

Selling Your Business Says:
December 15th, 2007 at 2:23 am
[…] Cash flow is always an important element in selling a business and here’s six important tips to improve your cash flow. The next thing to do is to choose the best time to sell your business. This will be affected by business cycles, real estate rates, and the economy. If you’re in the middle of a recession, you’ll want to wait. Interest rates, and industry trends will also affect your business’s value. […]