7th May 2012
7 smart things to do to keep money flowing in your business
Cash is the lifeblood of every business, but all too often, businesses don’t pay enough attention to bringing cash into the business as fast as possible. The consequences of doing this can be dire: it can mean you don’t have enough money to pay staff or suppliers or, worse, the business could fail completely.
There are lots of steps enterprises can take to make sure this does not happen. The idea is to be vigilant and consistent with your approach to cash management to ensure the enterprise is in the best financial position possible.
Step 1 – deal with quality customers
“It’s essential to deal only with quality customers who appreciate the value you offer, and are willing and able to pay promptly in return,” says Andrew Pride, a business coach with Smart-BIZ Consulting.
Step 2 – get paid up front
Pride advises asking for payment up front or cash-on-delivery whenever possible. “Too many people offer payment terms automatically, when many customers would be more than willing to pay you upfront,” he says.
Step 3 – be selective with accounts
Don’t offer accounts with payment terms to everybody, says Pride. “Reserve them for selected clients who genuinely need and deserve them and are willing to pay on time. Provide incentives for people to pay on delivery like a rewards program or prize draw each month.”
Step 4 – negotiate for staggered payments
Pride says another way to bring cash into the business fast is to break up payments for larger jobs into an up-front component and progress payments as the job progresses. “You might charge for cost of materials up front, then ask for weekly progress payments, with a final balance due on completion,” he says.
Step 5 – accept credit card payments
It’s also a great idea to take payments by credit card or encourage clients to arrange for pre-authorised direct debits to be made on the day a bill falls due, says Pride.
Step 6 – reduce your terms
Although many businesses offer 30-day terms as a matter of course, this delays the time it takes for the business to receive the money it is owed. Instead, says Pride, reduce your terms to seven or 14 days maximum and chase overdue accounts promptly.
“The days of posting cheques are gone, and have been replaced by online banking and instant EFT facilities. Give people reasonable time to pay but don’t volunteer to be their overdraft facility,” he says.
Step 7 – don’t bet the house
Finally, says Pride, never allow any single client to owe you more money that you can afford to lose. “Put yourself in this position and you potentially compromise the viability of your business. But if you put in place the right cash management processes in your business, this should never be a problem,” he says.
Everyday Settlement is a way to get paid faster for your services. Check it out and see if it could help your business cash flow.