As a small-business owner, there have likely been times when you have looked at your receivables and let out a heavy sigh. Cash flow is always a sensitive subject, but it’s a sucker punch when you see that you have more outstanding than is actually in the bank. Payroll can’t wait. Your lease payment won’t wait. But, for some reason, your customers are making you wait to get paid?
Here are three strategies to help amp up the speed of cash flow and move those receivables into the “received” column.
Accounts Receivable Financing (A/R financing) - Sometimes known as a ledgered line of credit or invoice financing, is a great solution for breweries that need more funding that is not available from traditional lenders. Many small businesses need additional cash flow to support seasonal demands, growth, business opportunities, or solve a short-term cash need. Accounts receivable financing provides your business with flexible and immediate cash that will give your business the opportunity to grow, restructure, take advantage of supplier discounts, hire additional employees, or even to fund payroll. With our accounts receivable financing options, you can access cash without having to give up equity in your small business, it's also less restrictive and less expensive than equity financing. A/R financing can increase or decrease based on your current businesses size and needs, allows you to gain administrative support to manage your receivables without additional staff, and gives you access to cash when you request it (based on your eligible accounts receivable).
This type of asset-based financing allows small businesses to get instant access to working capital without jumping through the hoops or dealing with the lengthy waits associated with getting a bank loan. When a business leverages its accounts receivables to boost its cash flow, it also doesn't have to worry about repayment schedules, and instead of focusing on trying to collect bills, it can focus attention on other core aspects of its business.
Automate Payments - Want to quickly shift your cash flow? Try automating payments. With the permission of your customers, you can keep credit card or bank account information on file and then initiate payment just by generating an invoice.
If you’re not ready for the level of bookkeeping software that can handle these details for you, ask your clients and customers to fill out a credit card authorization form. That way, you can instantly process payments for outstanding invoices. You also establish an understanding with your clients early in your relationship about how and when payment is due.
It's true that you will incur fees with credit cards and automated clearing house (ACH) payments, but isn't Net 6 minutes with a credit card better than Net 60 days with a check?
Send Invoices Right Away Online - Customers pay significantly faster when you invoice them right after the work is done, and you make it easier for them to pay you. This is common sense. If you ever had to pay for something via check, you probably waited a few days until it was convenient for you to go to the post office. It may have also taken you a few days just to pull out your checkbook and find a stamp.
By contrast, paying online with a credit card is much less of a hassle. It takes seconds as opposed to minutes. The question is, how do you charge customers online if you’re not an online store using an e-commerce system?
The answer is simple: Online invoicing and accounting software enables you to easily create invoices for your clients, which you can then send through email with a link for them to pay via credit. All customers have to do is click “pay now,” and they’ll be taken to a secure payment processing gateway to enter their card information. These tools are available through most invoicing and accounting programs.
Use Discounts as Rewards - If you find that your customers need additional incentive to speed payments along, consider an early or on-time payment discount. Many invoicing programs allow you to include information about such discounts directly into your invoices. By offering a reward for more desirable payment behavior, you might find that you not only improve cash flow but also cultivate a better client base. Such incentives reward you and the customer.
Agree on a Due Date Beforehand - Things are always easier in hindsight. This tip won’t work for your current non-paying customers, of course, but it’s a good habit to get into for your future jobs. Set the payment due date beforehand, and then you don’t feel as awkward reminding clients when they’re past due.
The key is choosing the right amount of time. If the invoice is due too soon (e.g. “due upon receipt”), clients may not take it seriously. If it’s too far out (e.g. “Net 60”, or due in 60 days), then clients can easily forget it. Many businesses find that 10 or 15 days is a good compromise. You may need to play around with it a bit, however, before finding the “sweet spot” that works for your business.
The formal way to write a due date on an invoice is to say “Net” before the number of days to explain that you want the full amount, known as the “net” amount, to be paid. To encourage earlier payments, you can offer a small discount. “2% 15, Net 30” would mean the client can receive a 2% discount if they pay within 15 days, or otherwise pay the full amount within 30 days. To make sure the payment due date appears clearly on invoices, try using an invoice generator.
Each of the recommendations made here can help your small business allocate capital where you need it, in your bank account and ready to fuel your next business need.