Managing cash flow is the lifeblood of every small business. Your work may reward you in ways that aren’t about money at all, but if the cash flowing in doesn’t exceed the cash flowing out, you’ll probably be in trouble before long.
These 12 ways to improve cash flow can help you encourage incoming payments, delay outlays of cash and stay on top of everything in between–like payments, late fees, and billing cycles.
1. Invoice immediately. Don’t wait until next week or next month. If you wait to invoice your clients, your creditors may think they can wait, too.
2. Use electronic billing. It’s fast, and customers are likely to respond more quickly when they can pay instantly. Your deposits can be deposited directly to your account and everyone saves on the cost of paper and stamps. Freshbooks and WePay are two online billing programs designed for small business owners.
3. Get it in writing. Set clear payment terms and expectations in your initial customer agreements. Spell out your terms on every invoice:
4. Include a specific due date. “Due upon receipt” can be ambiguous, while “payment due within 30 days of the bill date” clearly communicates your expectations.
5. Institute late fees. Without them, your customers may put off payment until a time that’s convenient for them but not for you.
6. Offer positive incentives for early payment. Give customers a good reason to pay sooner than they normally would. An example might be a 1-2% discount for payments received within two weeks of the bill date.
7. Sell your invoices.If your need for payment is especially urgent, you can sell your invoices for work already done to a factoring company. In exchange for a small fee, they’ll pay 90-99% of your original invoice amount upfront. This may be a good option if you typically have to wait 30, 60 or 90 days for payment of your invoices.
8. Slow down on bills. Hold off on paying bills until they’re due. If you’re presented with a worthwhile incentive for early payment, by all means, take advantage of it. Otherwise, set your target for a day or two before the due date (just to make sure your payment arrives on time and you don’t incur late fees). If you pay electronically, you can schedule in advance and with precision.
9. Periodic payments.Take advantage of periodic payment programs that are fee-free. For instance, small businesses with workers’ compensation coverage can pay their premiums every time their payroll is run. Payments are based on actual payroll, eliminating the need for a large down payment, and carry no installment charges.
10. Monitor your cash flow status on a weekly basis. Check off what’s been paid, what’s coming due and what’s late. Send reminder notices as necessary, and don’t forget to tack on your late fee.
11.Get a CPA if you don’t already have one. A CPA can help guide you toward your financial goals and offer corrective action should you begin to veer off course. Taxes, of course, are part of the equation and ever-changing, making the aid of a professional essential. A CPA can help ensure you’re taking best advantage of the deductions that can benefit your business and help improve your cash flow.
12. A line of credit. If you occasionally meet up with cash flow problems, a line of credit with a bank or credit union can be helpful to tap into as needed.
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View Comments (23)
Great article! Diff sharing with my clients. If it's one thing I've learned growing my business is that being an excellent bookkeeper can have a huge impact on small businesses. I love my CPA counterparts and I seek them for advice. But an excellent bookkeeper will handle all of the dirty work a CPA wouldn't. And there's huge money to made too in the bookkeeping arena.
A small business needs neither a CPA or a CMA. They need a small business accountant. I am a small business accountant with a Masters Degree and there is nothing that either of those two designations can do that I cannot do.
As for a tax focus, the biggest cost is taxes. As an Enrolled Agent I am a tax expert. The small business will face a number of tax and compliance issues including financial planning. The business owner needs someone who is experienced, educated and passionate about helping the business grow.
The best accountant for a company is one that understands the big picture and can create, and interpret the reports and be there for the business, not one who just has a bunch of letters after their name.
Randy,
I wish you the best of luck on your new book. Disagree with you completely. Many small CPA firms and real people doing bookkeeping are not horrific. Perhaps the small businesses you have dealt with were horrific. Just as with any professional, you will have excellent, good and mediocre. If you you know of horrific circumstances I hope that you recommended those clients to sue their horrific CPA.
Most small businesses want to go cheap as possible and it will hurt them in the end.
For small business owners under $1 million in annual sales I firmly believe you need a professional part time bookkeeper a couple of hours on at least a monthly basis. So a 2 month learning curve just like your IT or Sales support. Spend your time doing what you do best-that’s why you started a company. Pay them correctly. If you sell candles I can purchase some at the $ store. What makes your product different? You can get a “$ store” accountant or bookkeeper. Get it?
Good luck to all if you small business owners! You are the future of the USA !
I have been doing business consulting for the past decade and written a number of successful small business books. I currently do MasterMind groups under the SoCalMasterMind.com brand. So I have seen lots and lots of small business income statements and balance sheets. The work of most CPA's and outside bookkeepers is horrific. So much so that I'm working on a new book that will hopefully help owners to set up their books to be more useful and also learn to read the information for the "diamonds" to be found, since their outside accounting professionals aren't helping with analysis either (rare exceptions.
You asked for names.
Shaila Chamberlain is a CPA, CMA, MBA who is co-authoring the book and is one you can trust to do your books and give you spot on advice. SChamberlainCPA.com
LaVonne Shields is an accountant who has the same attitude, skill set and experience. accountingstrong.com
John Cummings is a factor who does non-recourse purchasing of invoices for truckers, manufacturers, trade schools, and employee placement service companies. John is fair, and still small enough to be very personal with his clients. ACSFactors.com
Thank you for these suggestions, Randy!
Our CPA is outstanding. Provides a second set of eyes and is maybe at most a couple grand per year and worth every penny. We also give them our personal tax business along with a lot of our employees so it helps everyone. He receives all of our business and we receive some great incentives. We have developed a good partnership and he likes to see our business grow. Because of this we have referred clients to him.
A number of years ago we went with credit card payments at completion of work and it has been amazing. Sure you pay a little (close to the cash incentive of paying early listed above), but you are paid nearly within 1-2 business days to help cash flow. If you have any large projects we ask for a deposit to reduce merchant fees and start the payment process early.
Also accepting ccards is a great time saver. I don't have to wait, log and deposit checks, etc. A few large clients are set up with ACH transfers which are free and timely.
Finally everything comes down to fair and reliable service. Our clients don't question what we ask of them because of our reliability and after doing business with us once they understand the process.
In regard to #7 you will find a non fintech non internet factor who may not fund “overnight” but will structure the funding accommodation to the clients situation and charge less .
In regard to 8 a buyer can take advantage of supply chain finance to have their vendors paid immediately at a discount and earn a rebate when paid.
Mark Landes
Landed Capital
We monetize your balance sheet
Having been an independent insurance agent for 46 years, I never had receivables. Clients were given written proposals, applications, insuring agreements to review(copies of policies), and a choice of direct bill (if the policy had insurance company billing capabilities), or full payment (if insurance company does not bill directly) and if full pay on those types of policies was not convenient, we always offered premium financing. The latter required a down payment which we would collect prior to putting any policy at all in force (binding). We also required a down payment for company-billed policies. We offered multiple ways to pay electronically, and signed forms also presented electronically.
Making it easy, convenient, and clear to all clients what they were buying, how to buy and how to easily pay.
These days it is imperative to provide customers ease of doing business and give them a reason why they should do business with ONLY you above any and all other choices out there...
As a result, cash flow was always incredible, customers were satisfied and we received a continual flow of referrals!
My 2 cents!
Thank you, Geri!
So I will get in on this CPA vs. non CPA discussion with Chris and David.
I am a degreed accountant (B.S.) not a CPA or CMA but with 25 + of experience with mostly small mfg. companies.
-A good CPA is a necessity for a small business. Your tax return and most likely audited financial statements need to be prepared by a CPA. This makes your business more legit especially if you need financing, not just for cash flow but for expansion. Banks do not usually accept a "PA" tax return or financials when you looking for a loan. I know this from recent experience.
-you NEED a bookkeeper! NOT your husband/wife/mother/neighbor or yourself (unless you are an accountant.) A good CPA firm will offer bookkeeping services at an hourly rate much less than their accounting/tax rate. If not, place an ad on Indeed. Lots of profe3ssionals look for jobs for a couple hours a week or month. I did this for many years. You need to work on your business-not on your accounting.
-Get an accounting program. QuickBooks is the most popular-not too expensive and all accountants (and most bookkeepers) know how to use it. Peachtree is a good second option.
Other comments on the article-it was written in 2014???? come on. ok updated in Feb.
-giving discounts for early payment on your customer invoices is done. 1%. Really?? Old fashioned. Incentives for early payment from your customers should depend on your business. Deposits for large amounts should be required. Yes, it will take some talking to your customers, but isn't that what you do best? You can also blame the new bookkeeper or accounting firm you hired. Just like charging late fees. No one will pay them and you will waste time talking to your customers about it and paying your bookkeeper or CPA to adjust them.
Be careful with factors and know what you're getting into - not all are created equal. Some of the companies mentioned still require weekly (sometimes monthly) payments and will still be a drain on your cashflow. It's nice to get SOME of the cash upfront, but when you have to use it just to pay them back because your invoices still haven't been paid, it doesn't make much sense.
Great article and helpful responses - thanks to all!