Cash is the lifeblood of any business. As humans need air to breath and food to eat, your business requires customers that provides the primary substance that keeps a business in business: cash.
But in the real world, businesses that invoice their customers for payment can face a challenge in getting paid, especially when the customer may be another business or a government agency. Somehow the terms "NET 15, NET 30 or DUE UPON RECEIPT" seem to go unnoticed by the customer and the invoice doesn't get paid until 60 to 90 days after the work has been performed. In other cases, the invoice may be paid after 120 days ? if not paid at all. For the seller, this can be the start of cash-flow challenges, which can rapidly escalate into a crisis.
In spending over 10 years working to help turn around financially troubled businesses, I have found that the key to better cash-flow is to ensure that the business implements a system to get their receivables paid quicker and faster, with less pain for the customer.
Here are eight ways to start improving a company's cash-flow today:
1. Give a Discount for Paying the Invoice Before the Due Date: Offer an additional percentage off or maybe a fixed dollar amount off of the total invoice if they pay within 5 days of the invoice date. This strategy works well because it provides a win-win situation for you and your customer. If they pay before the due date, they will save some additional money and you will be paid a lot faster. If they do not take advantage of your generous offer, they will be responsible for the balance owned. It also helps keep good customers because you have provided an incentive for them to continue to do business with you.
2. Have an Internal Collections System In Place: More often than not, a small business will focus so much on acquiring the client and performing the work that it doesn't dedicate as much time and effort to collect payment. Make sure you send your invoices out immediately upon completion of your work or shipping of your product. If you have the resources, have your staff send a friendly email reminder or make a phone call ten days before the due date (if it's a Net 30 or more term) to the customer reminding them to make payment.
3. Accept Credit Cards: One of the simplest ways to increase cash-flow is to accept credit cards. Once the charges are made, the money is transferred to your account, usually by the end of the business day, or in some cases, instantly. Studies have shown that people and businesses will spend more using a credit card than they will with cash. Offer your customers the ability to pay their invoices via credit card and your sales will increase. Because there are thousands of credit card processors in the United States, you are in a position to compare and negotiate processing rates and equipment rental fees.
4. Accept Checks By Phone, Fax and the Web: This is a very easy way to have your customers pay, with little hassle. There is inexpensive commercial software available for purchase which will allow you to create a check from your printer, based upon a check that your customer faxed to you, or gave to you over the phone. Also, there are online services available which will allow your client to "write" a check over the internet, email it to you and then you can print it and deposit it to your bank account. This is especially a great tool to use to improve cash-flow because while it reduces the wait time for receiving payment, it also reduces the time for the bank to clear the payment if it is drawn on a non-location bank.
5. Consider Accounts Receivable Financing/Factoring: The process is simple: when a company sells a currently due invoice from a credit-worthy business customer to a third party (The Factor) in exchange for getting that money today. The factor advances a certain percentage of the total amount of the invoice and holds a percentage in reserve. When the customer pays the invoice, the factor releases the reserve, less the agreed upon fee (discount rate). With factoring, your company's credit is not evaluated -- your customer's credit is. Factoring can be used as temporary or alternative financing for many businesses. Traditionally, manufacturing companies used this form of financing but today factoring is available to many other companies ranging from construction, import/export, distribution -- even companies that provide services to government entities.
6. Consider Purchase Order Funding: If your businesses provides services to other companies that require purchase orders, you can secure short term funding to be used to finance the purchase or manufacture of specific goods that have been pre-sold by you to your credit-worthy customer. This type of funding entails issuing letters of credit or providing funds that allow clients to secure the inventory they need to fulfill customer orders. This frees up existing cash that your business has on-hand for other use.
7. Have a Referral System: Word of mouth marketing is the most powerful and cost-effective way for a business to acquire new clients. People like to do business with those they like and trust; the same is true for businesses. You need to have a referral system in place with your existing customers, business partners and even your employees to help them to refer you business. A great book that will show you how to develop a word-of-mouth based marketing and referral system about this is The World's Best Known Marketing Secret by Ivan Misner, Ph.D., who is also the CEO and Founder of BNI (Business Network Int'l) , the world's largest business networking and referral organization.
8. Create a Rewards Program: Almost every major business ? from supermarkets to office supply stores to credit cards? has a rewards program. Some offers discounts to its customers in the form of a credit towards a future purchase, or special product incentives (i.e. buy one get one free) or in some cases even cash-back. You can create your own rewards program as a way to retain and reward customers who pay their bills on time or ahead of time. The cost is minimal to your company and results in future, higher value purchases with an increased frequency, and customer loyalty. You can also implement a rewards program as part of your referral system.
By implementing some or all of these strategies, you can help ensure that the cash keeps flowing and your business remains a viable entity.
? 2005, Timothy M. Houston. All Rights Reserved.
Timothy M. Houston is the President of Houston & Associates, a commercial debt management and business consulting firm based in Staten Island, New York with affiliated offices in Texas, California and Florida, (http://www.houstonandassociates.com). In 2005, Tim launched SmallBizSaver.com (http://www.houstonandassociates.com) which is dedicated to helping small businesses to stay in business.
limo prices to midway Crystal Lake west of Randal .. Lockport Chicago limo O’HareHow do window cleaning franchise businesses start? It is a... Read More
Last year, trillions of dollars transferred hands on the internet... Read More
Most doctors never distinguish the difference between customers and patients.... Read More
For the employees, payday is the brightest day; they finally... Read More
Pity parties are nothing new. In fact, we do it... Read More
As a specialist in getting restaurants open, it is surprising... Read More
Success is the desire of everyman on the face of... Read More
In today's fast paced marketplace it is easy to neglect... Read More
By outsourcing to skilled professionals you'll be able to grow... Read More
We all know that competition is an ugly word but... Read More
There are many choices when thinking about a small business... Read More
Large corporations use employee manuals to both educate employees about... Read More
Database Problems in MarketingI have been working on a direct... Read More
Sacred cows take a long time to die. We get... Read More
If you are a franchisee of a large franchise system;... Read More
As stability emerges in the Middle East there will be... Read More
Entrepreneurs are hardy stock. But sometimes hardiness can get you... Read More
It has been said that the only constant is change.... Read More
If you are in a franchise and have a territory... Read More
More sales and more profit. Isn't that what you want... Read More
As a franchisor I am always asked by new and... Read More
-- Beyond Cold Calling, "Warm" Calling and Sending E-mails --Many... Read More
Remember those drawings from science class of how a lever... Read More
Franchising is the fastest way to build small businesses, provide... Read More
Image of your franchise automotive outlet is so important. Some... Read More
taxi o'hare Auburn ..If you are a motorcycle detailer and need to expand... Read More
Before you read any further in this article, I'd like... Read More
Many people ask how many graphs or charts they should... Read More
While there are few career paths that some would call... Read More
Do You Really Need a Toll-Free Number for Your Business?... Read More
Do you have all the customers your business can use?The... Read More
There have been many great points raised on both sides... Read More
A consultant must remember that the business belongs to the... Read More
I ran a franchise company for many years, a car... Read More
So you want to get into the auto detailing business... Read More
Many of our nations 400,000 franchisees run their businesses out... Read More
All cities have a purchasing office and/or a procurement officer.... Read More
Consistency is a huge word when operating your business. I... Read More
When a regulator finds a target to go after to... Read More
I love work, I can watch it all day.I am... Read More
We love Wichita because it has great all round weather... Read More
If you are in the pressure washing business and are... Read More
When the recent Games of the XXVIII Olympiad came to... Read More
One overlooked individual in the process of taking a company... Read More
Manufactured and Mobile Home owners know that the weather this... Read More
You've heard marketing and advertising gurus quip, "Sell the sizzle,... Read More
Self-cleaning glass has been talked about a lot, with such... Read More
Service Cleaning Businesses must maintain their equipment in order to... Read More
Q: Is the online world the best place to sell... Read More
Never underestimate the power of perception! Perception plays a major... Read More
Small Business |