Everyone agrees: stable cash flow is the lifeblood to any company – especially small businesses, where a reported 82% are caused to fail in the U.S. due to improper cash flow management.
So, when the fate and smooth function of a business hangs in the balance… how can owners better ensure that lifeblood keeps pumping back income into the heart of their company?
It all comes down to the invoice and 4 practical ways to improve cash flow.
1) The Invoice Process
As income is received through invoicing, the first look any business should take when increasing cash flow is at their current invoice process.
How are invoices being sent and when? How often is error editing being made? Are the invoices being sent directly to the client’s accounts payable department or another, more time-consuming avenue? All of these questions and more are crucial to answer, and then revise as necessary, for a healthy cash flow.
For example, sending invoices electronically versus through snail mail is not only efficient, reducing creation time by 70%, but also cost effective – up to 82% cheaper when considering paper products, postage, billable hours, and higher error rates.
Simplify the invoice process, cut back on time, and save in the long run.
2) Payment Problem Solving
Sometimes delayed cash flow happens simply because a client isn’t paying. Figuring out why and having payment dispute processes in place before a problem arises can help eliminate late payments, along with any ill-will in the business relationship.
All deadlines or payment terms and conditions should be detailed clearly in the contract, while interest rates are a great way to reduce delayed payments.
Additionally, investing in an integrated system that allows not only automatic invoicing and reminders, but also client-to-business messaging for convenient problem solving in the event of an error or dispute, is a worthy consideration.
Remember: most late payments are simply the result of forgetting or minor error, so consideration is key!
3) Efficient Payment Options
If a business is still relying on paper check/cash or money orders in the digital age, the fact is that better options exist.
Checks might be one of the more common payment methods in the States, but they’re incredibly slow to arrive, have a higher fraud and bounce rate, and can sometimes cost businesses processing and bank fees.
Digital payments – whether through credit card transactions, third-party payment processors, or direct deposits into a bank account (EFT or ACH) – are a much faster, efficient, and cost effective option.
At the very least, it’s worth asking the client to switch.
4) Early-Bird Incentives
Which brings us to our final point: early payment incentives.
Everyone (hopefully) should have a due date on the invoice, but the faster that payment arrives, the better for cash flow. Small incentives like discount prices, minor added services, or scheduling flexibility can often prompt clients to pay up early versus waiting till the last minute.
A win-win for all involved!
No business is truly beyond help when it comes to cash flow – sometimes it just requires a little planning, management, and forethought to keep your financials stable.