When it comes to cash flow, businesses often struggle with having enough. Here’s some things to consider to help improve your cash flow.
1 Get paid upfront
Offering clients a discount for payment in advance will save you more in the long run. This strategy can be particularly effective if clients already make part-payments upfront. When you quote for a job, include the option of a discount for full payment upfront. It has the added advantage that you’re not going to have someone cancel an order or job at the last minute if it’s already been paid for.
2 Outsource late payments
Chasing up late payments can be a headache and puts a strain on business relationships. Have a clear policy on late payments and consider outsourcing debt collection. Ensure one person is tasked with tracking invoice payments and that reminders are sent on the due date, as many businesses, like you, are trying to maximise their cash flow and will wait until payments are due before settling.
3 Make it easy for people to pay
Use mobile payment technology to collect payment on the spot. It will save you the trouble of issuing and chasing up invoices. If you do need to invoice, do it promptly. Psychologists say people are more likely to pay when the memory of the product or service is fresh in their minds. And offer as many payment options as possible: PayPal, direct debit, credit card, phone pay. Use technology, such as click-through links on electronic invoices that link debtors directly to payment sites.
4 Manage your stock
When the Dick Smith electronics chain collapsed in January 2016, it emerged the retailer had an estimated 12-year supply of batteries in stock. It’s a sobering reminder that the top end of town can stuff up stock management too. Business coach Paul Roach says many SMEs hold too much stock in the mistaken belief you need more to sell more.
The reality is a full stockroom can drain your bank account fast. Try to pre-sell where possible and get the best terms from suppliers to slash the lag between when you buy and sell, and don’t overstock. “Knowing how to manage stock is a big part of the education game. It’s also finding a market niche where you’re not trying to be everything to everyone,” Roach advises.
