Late payments are increasingly a source of serious concern for business owners, and one of the biggest reasons of a cash crunch. Business owners need to take a hard look at what they’re willing to allow, sometimes an otherwise friendly business relationship isn’t worth maintaining if the account is constantly slow paying and unprofitable.
Small businesses are particularly prone to problems stemming from late payments from customers because they often don't have consistent policies in place about collecting on unpaid receivables nor a dedicated credit manager or collections team. It’s imperative to send out bills as soon as you can and it’s important to make sure that your invoices are standardized and accurate. If you put invoices together hastily or incorrectly, and if your customer has any confusion or question about the accuracy of the invoice, that gives them an excuse to be slow to pay.
Here are a few simple, yet effective strategies to help amp up the speed of cash flow and move those receivables into the received column:
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.
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).
Clear Your Outstanding Invoices - Instead of waiting 30, 60 or 90 days to get paid, click any of your outstanding invoices to get the amount transferred to your bank account instantly and securely. You no longer need to wait for your customers to pay you to get the funds you need. We will purchase your outstanding invoices and will immediately transfer the full amount of each invoice to your bank account. Payments are made automatically on a weekly basis. Choose 12 or 24 week payment periods. Simple and secure. We manage the associated credit risks and make sure you don't have to wait for your customers to pay to run your business like you want to. Pay salaries, buy equipment, travel for business, and more. You're free to focus your time and energy on maintaining and growing your business, not your invoices. Peace of mind guaranteed.
Require Up-Front Deposits - No matter what kind of business you run, whether you head up a general contracting company or a boutique advertising agency — there’s value in getting deposits up front. Up-front deposits confirm a client’s commitment and speed up your cash flow.
First, you will need to decide what percentage of the project should be paid in advance (25 percent to 50 percent is an average deposit amount.) The most important aspect of establishing a deposit policy is to outline both how and when deposits must be paid, and when remaining balances will come due. If you’re creating intellectual property for your clients, you might consider a clause in your contract that releases rights upon receipt of final payment. There’s nothing like a sense of urgency to inspire a speedy payment.
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.
Cash flow is the lifeblood of your business. Just like caring for your health, a bit of preventative maintenance and careful ongoing attention can keep your business’s revenues healthy and strong. Cash crunches can be especially nerve-racking for business owners that do not have adequate access to credit. Sometimes you might need to borrow money on a short-term basis in order to make payroll and pay rent, and keep your business running until your next big paycheck arrives. With that in mind, consider applying for a cash flow loan or revenue based loan that is big enough to meet your small businesses needs. Getting through a cash crunch is one of those occasional stresses that every small business owner needs to know how to navigate. Once you know the cause of your cash crunch, you can be proactive about finding a solution and building a stronger financial foundation for your company's future.