Cash flow problems are one of the main reasons for businesses to struggle financially. It doesn’t matter how great your profit is, if you have poor cash flow, you will not be able to pay your bills on time. If your cash problems have only just started, you can improve it by making a few changes to the way your business runs. We are suggesting five tips to quickly improve your situation.
1. Change your invoicing: instead of allowing clients to pay you upon completion, set a requirement that the balance is paid upfront. This means that the money is in the account before the work starts; you will not waste time on a project that works out to be a financial write off.
If you don’t have the option of asking for the full bill upfront, consider asking for milestone payments or for the client to place the money into an escrow account; so that money cannot be spent accidentally by the other party. You will gain the funds immediately upon completion of the project.
2. Change your billing dates: there may be the option to contact the people you have to pay to change your billing dates. This helps them fall in line with when you are more likely to be paid. This may work out if you know that there is a set payment coming through at set stages of the month and most suppliers will agree to a change in date; as long as you pay the money.
3. Organise a better contract: when it comes to suppliers, organise a better deal. You could maybe get more for your current price or arrange a lower price for your suppliers. Consider whether you need as much supplies as you gain and reduce them where possible. The less money going out, the less you need to worry about your cash flow problems.
4. Stay on top of the collections: it’s easy to end up letting payments slide, especially if you don’t have an automated system in place. Track the bad debt and implement an effective collections strategy to increase the chances of being paid; and making it more likely that people will pay you on time.
The best thing to do would be to create an automated system. There are many pieces of software around that will help you to do this. They will send out automatic reminders for overdue bills and alert you when an invoice gets past a certain point so you can take further action.
5. Have more clients: there is a general saying in business to never have all your eggs in one basket. You should always have plenty of clients as you never know when one will struggle financially; leading to financial problems for you. Never have one client that creates more than 25% of your profit.
Diversifying your client base and changing your invoicing methods are two of the most efficient ways to improve your cash flow. However, you also need to look at the money going out and seeing if you can change that to suit when you have money coming in.