12 Ways to Improve Your Cash Flow

Kathy Simpson

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.

Next Steps: Not sure if you’re using the most budget-friendly CRM system? Don’t know if you’re using the right tools for managing your day, paying your employees, and billing your customers?  We’ve got you covered with the weekly Small Biz Ahead Newsletter. Sign up today and start receiving the weekly newsletter chock full of the latest tools and resources to help you run a successful business.

8 Responses to "12 Ways to Improve Your Cash Flow"

    • Lisa | November 14, 2017 at 12:32 pm

      Trying to

    • David | June 13, 2018 at 9:43 am

      Excellent advise as is with most of your SmallBiz Ahead Newsletters. Thanks

    • Chris Baker | June 13, 2018 at 11:09 am

      Great advice, thanks for sharing! I’ve really been enjoying these Hartford Small business posts!

    • David Worrell | June 13, 2018 at 11:26 am

      Excellent article, and spot on…. with one exception.
      Hiring a CPA is probably a mistake for most businesses, and here’s why:
      * CPAs are tax (and audit) focused. Tax accounting is world’s different than good “Management Accounting”. In fact, there is a designation for Management Accountants — CMA.
      * CPAs are so busy for half the year that they can’t return phone calls. Good luck finding on in April.
      * CPAs are notoriously bad communicators, and what you need is someone who can make sense of the numbers and tell you what’s going on in your business.
      * CPAs are expensive — like $250 to $750 per hour. A good management accountant will charge $50 to $150 depending on skills required.

      So… rather than subject yourself to bad advice from an expensive nerd, please consider hiring a finance professional who specializes in day to day operational & management finance. Find a CFO (or a part-time or “Fractional” CFO) who can interpret the finance numbers, and also look at what’s really going on in the business.

      When cash flow is tight, an inexpensive part time CFO can work wonders — tightening credit policies, getting loans from the bank, negotiating with vendors, and projecting cash flows so there are no nasty surprises. An expensive CPA is unlikely to do any of those things for you. (After all, they have tax clients waiting for their expensive advice about tax loopholes!)

      Dedicated to your profits,
      David Worrell
      Fuse Financial Partners

    • Chris Baker | June 14, 2018 at 4:20 pm

      Hey David, thanks for the comment.

      Overall, I’m sure what you say has a lot of truth. But being one of the few CPA’s out there that has taken a different approach, my only feedback is that you do not include all of us in your generalizations/assumptions.

      My company provides daily money management services to individuals, particularly the elderly and disabled. In your words, we act as their CFO. We are in contact throughout the year and are excellent communicators. We have to be. Our fees are no where near $250-$750 per hour. We have been built to specifically help individuals, therefore we are much more affordable. And just as you said in your last paragraph, we provide those same kinds of services for our clients. It’s a very rewarding line of work and hope it catches on with the main stream public.

      So just remember, a lot of what you say might be true, but not for all CPA’s!!

      All the best to you,
      Chris

      Baker DMM
      Think Forward, Live In The Moment

    • David Worrell | June 15, 2018 at 1:38 pm

      Thanks Chris:

      Fair point. I generalize too much — and to be fair, plenty of CPAs do not do tax or audit work. Nonetheless, in the mind of 74% of small business people I meet, CPA = TAX = ACCOUNTING. It’s a shame that the professional designation has come to be so wrapped up in tax… and at the same time the CPA brand is so well marketed that small businesses think they need a CPA for ALL accounting.

      So it’s really the linkage between CPA and Accounting that I rail against: When Small Business owners reach out to a Tax preparer to do their day-to-day operational accounting, they inevitably get bad advice and bad service.

      So — I wonder (a) why you choose to keep your CPA to do non-CPA work; (b) whether your clients care if you are a CPA; (c) if you call yourself a CPA in your marketing; and (d) if you might be better off calling yourself an adviser or “personal CFO”???

      Thanks for the thought exercise.
      David Worrell
      Fuse Financial Partners

    • Chris Baker | June 17, 2018 at 10:51 am

      Hey David, responses noted below your initial comment.

      Fair point. I generalize too much — and to be fair, plenty of CPAs do not do tax or audit work – –

      No worries, we all have our strengths and weaknesses. The only thing we can do is try to learn and grow every day and do the best we can to improve.

      Nonetheless, in the mind of 74% of small business people I meet, CPA = TAX = ACCOUNTING. – –

      Totally agree with CPA = tax = accounting part. I also find that, usually, when I meet people out in the community when I say CPA they automatically associate with tax. The connection from tax to accounting is an organic connection and for the most part makes sense. See below for more.

      It’s a shame that the professional designation has come to be so wrapped up in tax… – –

      I agree!

      and at the same time the CPA brand is so well marketed that small businesses think they need a CPA for ALL accounting – –

      I do think the CPA brand has done a great job of marketing and keeping the designation relevant over the years, but I’m not sure I agree with you about your statement “the CPA brand is so well marketed that small businesses think they need a CPA for ALL accounting”. If you look up the definition of accounting, it states “the action or process of keeping financial accounts”. For the most part, traditionally accountants have been known as “bean counters”. We’ve typically been the people who the keep the books. There is a natural segway from keeping the books to doing the taxes… because you need the books to do the taxes. So it’s not so much because of marketing, but just an organic flow of process to get the work done. Although is a direct flow between tax and accounting, preferably these tasks should be completed by separate people or departments.

      In your original post you referenced “day to day operational and management finance”. If you look up the definition of finance, one of them states “Finance is a term describing the study and system of money, investments, and other financial instruments.” I don’t disagree with you and as we both know this type of service is invaluable to a business owner. But this is a fundamentally different scope of the service than what #11 is saying accountants provide. Instead of you stating that the writer made a mistake by suggesting to hire a CPA (because a business usually needs help with bookkeeping and taxes), you would have been better served by stating “the article is great, but the writer left one important piece of the puzzle, and that is “consider hiring a finance professional who specializes in day to day operational & management finance”. You would have gotten your point across, established your value, and done so with our tearing down the team or minimizing the work of the other team players.

      So it’s really the linkage between CPA and Accounting that I rail against: When Small Business owners reach out to a Tax preparer to do their day-to-day operational accounting, they inevitably get bad advice and bad service – –

      See notes above. I agree with you. If someone only specialized in doing taxes, they should not be the bookkeeper. If the firm or person has experience doing both, no issues there, although really you should have two different doing the work to keep independent. Regarding bad advice, I agree with you, usually the bookkeeper/tax person should not be providing the finance advice. That’s why they should hire someone such as your self that has the “finance” background. There is nothing wrong with the linkage between CPA = tax = accounting, this makes total sense. If you look at any Fortune 1000 company, they typically have both “accounting”, “tax” and “finance” departments.

      So — I wonder (a) why you choose to keep your CPA to do non-CPA work: – –

      Going back to the definition of accounting, we keep and maintain their accounts, i.e. bookkeeping. I am a licensed professional, certified by the state. And we serve the public. It all makes perfect sense. Probably more so with our work than that of other CPAs. So really, the acronym fits perfectly for what we do. The core of service, the reason why we are here is to help protect these people, and we do this by providing bookkeeping services.

      As a CPA you have to be educated 5 years in college to obtain the accounting degree and license. You have to take a pretty tough (respected) exam to establish competence, then work in public or private accounting, and every year take 40 hours of continuing professional education. When this is communicated to people, they tend to respect you more than some guy off the street who proclaims themselves to be an accounting professional or expert.

      (b) whether your clients care if you are a CPA; – –

      Yes, they do. As noted above, when we tell them this, this usually garners respect.

      (c) if you call yourself a CPA in your marketing – –

      Si, senor.

      (d) if you might be better off calling yourself an adviser or “personal CFO”??? – –

      Many times we’re working with financial planners to help contribute those more “personal CFO” services. I simply made the point for the individuals we serve, we go above and beyond just the routine bookkeeping… we can assist with tightening credit policies, getting loans from the bank, negotiating with vendors, and projecting cash flows so there are no nasty surprise. But this is not the “core” of what we do. We have the CPA, as well as DMM moniker, because this the core of what we do. There are a lot of other financial planners and professionals who use the terms adviser and personal CFO. Personal CFO a lot of times is connected with business. So for now trying to keep these identifiers separate and focus on our own niche.

      Thanks for the thought exercise – –

      Sure thing, I appreciate your thoughts too. Good to keep the brain going and growing. Hope you’ve been enjoying the weekend!

    • Linda | June 25, 2018 at 1:06 pm

      I couldn’t imagine running my business without the support and guidance of my CPA. Sure, he does all the taxes and reports each year for me and my company, but he goes above and beyond that. My CPA is an advisor, mentor, co-planner and sounding board. I think of the title “CPA” as a necessary one that generically identifies the work I will be receiving. That said, if someone is looking to sign up with a CPA, the specific arrangement and services to be received should be detailed in the service agreement, and if all that a CPA can offer is taxes and bookkeeping, I might want to continue searching for a provider with a more comprehensive approach to small business needs. Thankfully, I have just that.

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