Facilitating a healthy cash flow is often key to running a successful business. After all, this often means that you have better control over your finances and will, therefore, be able to avoid any problematic situations. However, given that 61% of small businesses struggle with cash flow, it can be hard to know where to start as a business owner.
With that in mind, here are some top tips that you can use to improve cash flow within your business – before the end of the year!
What you can expect in this article:
Set clear expectations regarding payments
Delayed payments are one of the most common forms of cash flow struggles. However, they can often be remedied by managing your client’s/customers’ expectations ahead of time. For example, before carrying out any work for them, you should discuss:
- The total costs of your services
- Payment date(s)
- Payment plans
- Interest fees for late payments
This way, your client is expecting your invoice and can process the payment quickly and efficiently without the need for further questions.
Offer payment plans
If you’re in the financial position to do so and trust that your client will pay in full, you may also want to put in place a payment plan instead of sending out the entire invoice in full. This makes it easier for your clients to cover the cost of more expensive projects while still ensuring that you are fairly compensated for your work. For example, you may take an upfront fee and then several smaller payments at monthly intervals.
If considering this approach, you may want to carry out a client credit check ahead of time to ensure that you will receive all of the money over time.
Don’t be afraid to chase late invoices
Typically, you should expect to receive payments from clients within two weeks of sending out an invoice. Despite this, many business owners are reluctant to chase up delayed invoices, as they’re worried about damaging their relationships with clients. For example, you don’t want to appear as though you do not trust the client to pay, even if their current behaviour is concerning, and they’ve generally paid on time in the past.
While these relationships are essential, it’s equally important that you are paid for the work you’ve completed. As such, you must learn how to chase outstanding invoices without damaging client relationships. For example, this can often be as simple as sending a polite follow-up email asking when you can expect to receive a payment.
Simplify the payment process
Making it easier for your clients to pay their bills or invoices can also improve cash flow, as it means they can process their payments in just a few minutes (or even seconds). One way you can achieve this goal is through payment api integration. This is a process that allows you to integrate a payment hub platform into your website, mobile app, or point-of-sale products so that clients can pay quickly and efficiently.
Charge interest on late payments
Whether you are trying to look after your finances during a crisis or would simply like to encourage prompt payments, charging interest on late payments can also help you to improve cash flow within your business. Of course, you must check up on the legalities of this process ahead of time, as the amount of interest you can charge (and when) may vary depending on your location. However, as a general rule of thumb, you can start charging interest 30 days after the invoice date.
Incentivise early payments
While charging interest on a late payment means a client is unlikely to make the same mistake twice, there are other ways in which you can begin to incentivise prompt payments. For example, you may want to offer discounts to clients who pay upfront or on the same day that the invoice is sent out. This can save you a lot of time and stress when it comes to chasing those payments.
Cut down on your expenses
Cutting down on your monthly or annual expenses will also improve cash flow, as it ensures you have more money set aside to re-invest in business growth. Right now, one of the easiest ways to reduce your expenses is to have your team work remotely or develop a hybrid working schedule. This means you can forgo renting out an office/workspace altogether or, at the very least, downsize. Not only will you then be spending less on rent, but you’ll also avoid utility bills and other expenses.