You work hard all day, every day, running your business. You bring in clients and customers, do the jobs, send invoices – but you never seem to have any money to show for it. If that sounds all too familiar, you may have a cash-flow problem.
Cash flow can be one of the hardest things to manage as a business owner. Even if you have plenty of clients, jobs, and bills going out, it can feel as if you don’t actually have any cash on hand. Waiting for payment of invoices while your own bills pile up can be frustrating and demoralising, not to mention bad for business.
Fortunately, improving your cash flow situation doesn’t have to mean completely changing the way you work – small changes to some of your invoicing, payment, and credit processes can make a significant difference.
Here’s our quick guide to boosting cash flow in your business:
1. Immediate invoicing
Although it’s traditional, there’s no real reason to wait until the end of the month to send invoices. Prompt invoicing encourages prompt payment, and prompt payment leads to better cash flow.
Even if your clients don’t pay straight away, sending invoices earlier cuts down on the time you have to wait for payment. If you give them a month to pay the invoice, it’s better to start that month as soon as possible. As soon as a job is completed or order sent out, an invoice should be sent. Make it a standard part of the process so it’s done every time.
2. Encourage the early birds
Incentivising prompt payment can help speed up the cash-flow cycle. The simplest way to do this is by offering a discount for early payment – for most businesses, 2% is enough to motivate clients without cutting into profits too much. Penalising clients for overdue invoices is another option, but incentives are a more client-friendly way to improve your cash situation.
3. Check first, credit later
You don’t have to extend credit to every single customer. In fact, offering credit to everyone can lead to late payments, unpaid bills, and cash-flow problems.
Make sure your credit policies are robust, with guidelines to determine which clients and customers will get credit, how long they will be able to delay payment, and how much they can owe. New customers should be required to fill out an application and consent to a credit check before you start work. If offering credit isn’t working for you, you can also make the decision to get customers to prepay or pay when they purchase, although this can be difficult in some industries.
4. Tweak your terms
Your payment terms dictate how much credit you’ll give customers, how long they have to pay, and what happens if an invoice is unpaid. Using shorter credit terms – for example, switching your credit period from a month to two weeks – can make a surprising difference to your cash flow.
5. Keep costs under control
Incoming payments aren’t the only factor in cash-flow problems. Outgoings are equally important – so it’s essential to keep them in check. Review your expenses regularly, making sure to compare actual expenditures with your monthly budget. If you’re regularly going over budget in some areas, look for ways to cut those costs – like changing suppliers, reducing waste, or moving offices.
6. Perfect your pricing
No business owner wants to increase prices, but if your costs are going up and your margins are growing thin, it may be necessary. Before you implement an increase, do a thorough review of your costs and current pricing so you can justify changes to clients or customers. Most people understand that the cost of goods and services increases over time, so unless you’re suddenly doubling prices without warning, you’re not likely to run into major opposition.
7. Go for your goals
You’re probably setting goals in other areas of your business, so set a cash goal as well – knowing exactly what you’re working towards helps motivate you to make changes. Try to set realistic, manageable cash-flow goals at first, then increase as your cash-flow situation improves.
8. Looking at your future cash flow
Forecasting is another tool to help manage your cash flow. Many accounting software programs have a forecasting function, all you need to do is set up regular cash-flow forecasts and learn how to use them. A cash-flow forecast lets you see likely outcomes of financial decisions ahead of time, and gives you warning of upcoming ‘holes’ in your cash flow so you can prepare for them. In the long run, using forecasting helps you work towards your cash-flow goals and avoid major issues.
Boost your cash, grow your business
Without ready cash on hand, it’s much harder to hire new staff, buy new equipment, or make changes to your service. If you can’t do those things, moving your business forward is almost impossible. That’s why cash flow is so important for business growth.
Although these small changes can make a significant difference, sometimes you need expert guidance as well. If you’re keen to speed up your cash flow, but you’re not sure where to start, talk to the Thrive CA team for advice, support, and practical strategies.