Proper cash flow management is key for any growing business. In a perfect world, profitability should always equate to positive cash flow. However, you don’t operate your business in a perfect world. Your clients don’t always pay their bills on time — yet you still need to compensate your employees, pay your vendors, and keep your literal lights on.
Since cash flow is the lifeblood of your business, you can’t fall behind. Instead you need to get creative—fortunately, we can help. Here are five simple cash flow management strategies that you can employ today.
Ready to attain flexible, easy-to-access working capital? Open a Union Community Bank Business Line of Credit today.
Have You Considered These Cash Flow Management Strategies?
#1 Insist on Deposits from Your Clients
Depending on the type of business you run, you may already know the value of a cash deposit —prior to any work beginning. If deposits aren’t part of your standard booking procedure, consider insisting on a partial deposit as part of the scheduling process for all new jobs. You can calculate the ideal deposit as a percentage of the total bill — or charge a flat rate for each.
A cash deposit allows you some extra cash flow breathing room, especially if you are accustomed to only collecting when a project is finished.
Make it easier for your clients to pay you in full and on-time. Learn more about Union ACH Direct Debit/Collections.
#2 Invoice promptly
Some businesses do all of their invoicing at once — on a specific day of the week or month. While this may be a time saving measure, it can cause crucial gaps in cash flow.
Always take the time to invoice as soon as work is completed. Your clients will appreciate your timely response, and you’ll appreciate having a healthy cash flow.
#3 Provide Incentives for Clients to Pay on Time
The sooner your clients pay you, the sooner you can pay your bills. However, your clients may choose not to pay immediately — or may experience their own cash flow constraints which delay their payments.
To stay ahead of these problems, cash flow savvy businesses often offer clients a discount on the total billable amount in return for paying quickly (often within 15 days). Anywhere from a 2% to 3% discount is common for prompt payment.
This is a great holistic business move. Your clients will enjoy the discount — especially if they buy frequently. Meanwhile you can maintain tighter cash flow management.
#4 Negotiate an Extended Pay Period with Your Vendors
In order to maximize the amount of time you have to receive a payment, you can negotiate a longer pay period with your vendors. Although almost all vendors would prefer you to pay sooner rather than later, if you explain the circumstances, they will likely be amenable to you taking more time.
While it may be tempting to simply delay payments, the uncertainty will create problems for your vendors. Forging an agreement is always preferable.
#5 Stay on top of Collections — Personally
A sea of past due bills can sink your business. After all, if you aren’t paid for the work you do, how can you pay anyone else? However, when handling the collection of past due bills, the right approach can make all the difference.
The majority of businesses find that following up on past due bills personally yields better results than sending the past due bills to a collection agency. If you explain your position, request they pay as soon as possible, and you’ll likely get the result you need.
Why You Should Personally Make Collections
- Collection agencies charge you fees, further exacerbating your cash flow quandary
- Your valued clients may resent the collection agency approach
- Collection agencies don’t work quickly, so you’ll still have the same cash flow issues
Union Community Bank Offers Lines of Credit to Assist with Cash Flow
If these strategies still don’t rectify your cash flow difficulty, help is available. Business Lines of Credit through Union Community Bank provide a low interest solution to standard cash flow management roadblocks.
Uses for Business Lines of Credit Include:
- Purchasing supplies
- Increasing working capital
- Seasonal expenses