Erica Seppala: An expert in accounting, finance, and point of sale, Erica has been researching and writing about all things small-business since 2018.
Cash flow is the mainstay of your business. But what if you have negative cash flow? These 12 practical tips will help you improve your business’s cash flow.
The key to increasing cash flow is not just bringing in more cash inflows but also limiting your cash outflows. That means you have to manage your expenses just as much as your sales. Read on for 12 practical tips to help you improve your business’s cash flow.
1) Send Invoices Right Away
Sales and invoices are the lifeblood of a small business. You can’t get paid if you don’t send invoices. It’s as simple as that.
Make sure you stay on top of invoicing your customers. The quicker you send invoices out, the faster the cash comes in. If your current invoicing process is tedious, consider switching to a cloud-based accounting app with attractive, easy-to-create invoices. Software such as QuickBooks Online and Zoho Books both offer great invoicing capabilities that can help you speed up your invoicing process and increase your cash flow.
Our comprehensive accounting software reviews cover QuickBooks products, Xero, Freshbooks, Sage, and more of the top cloud-based and locally-installed accounting solutions on the market today. If you want a quick peek at the top contenders, check out our accounting software comparison chart.
2) Get Customers To Pay Invoices On Time
Another key to increasing your cash flow is getting your customers to pay their invoices on time. We know this is easier said than done, but there are plenty of practical strategies to increase the likelihood of getting your invoices paid faster. Here are some of our top invoicing tips:
Follow Up With Invoice Reminders
Make sure you remind your customers when their invoices are due. Send email reminders a few days before the invoice is due, the day the invoice is due, and a few days after. If they still haven’t paid, give them a call and continue sending reminders. Many accounting programs and invoicing software have built-in invoice reminders that you can automatically send to late-paying customers.
Give Your Customers Incentives
Consider offering a discount to customers who pay their invoices before a certain time. If your invoice terms are Net 30 (due 30 days after the invoice is sent), but you really want your customers to pay within a week of receiving their invoice, offer a small discount. Customers looking for a deal will be more likely to pay their invoices faster, which means you get cash faster.
Charge A Late Payment Penalty
Another key to successful invoicing is having a strong invoicing policy. Choose a consistent time when invoices are due (for example, due upon receipt, Net-15, Net-30, etc.) and stick to it. You might even take it a step further and include a specific due date to eliminate any confusion. Have a late payment penalty in place for customers who exceed the due date. Not only will this help increase your chances of getting your money, but it will also set you apart as a professional.
When it comes to late payment penalties, be upfront about the penalty, when it will be charged, and how much will be charged. You can often include this in the terms and conditions section on your invoice. Do some research on what a typical late penalty policy looks like for your industry before implementing one of your own.
Consider Invoice Factoring
If the above strategies don’t work, or you need cash right away, another option is invoice factoring. Invoicing factoring is the process of selling your unpaid invoices to a company in exchange for immediate cash. The factoring company takes a small cut of the money you earn, but the payoff is that you aren’t stuck waiting on customers.
3) Increase Prices
If your cash flow is poor, it may be time to consider increasing the prices for your products or services. Ask yourself:
- What are my competitors charging?
- Have the prices for equipment or inventory increased?
- How much staffing does my inventory assembly or services require?
- Do my prices compensate for the time put into my creating my products?
- Are my prices too low? Do my products come off as cheap or valuable?
You want to strike a balance between keeping your prices competitive and being fairly compensated for the hard work you and your employees do. At the end of the day, you want to make sales, but you also want to make a profit. If your prices are too low, you may be selling yourself short. In some cases, lower prices can also make your company seem less qualified.
Even if your prices seem fine now, it’s more important than ever to continue to keep an eye on current market pricing and trends and adjust your prices accordingly. Supply shortages on everything from food to building supplies as a result of the pandemic have led to rising costs for businesses. Failure to adjust your pricing to account for these increased costs can spell disaster for your business. So while you still want to offer your customers competitive pricing, it’s also important to increase prices as necessary to improve cash flow and keep your business’s doors open.