Positive cash flow means your business is running smoothly. You have the funds needed to cover daily operations, pay taxes, buy materials, and pay your employees. When your cash flow starts to decrease, it may not be time to go into panic mode. Here are 18 ways to increase your cash flow, without making any major changes to your business.
1. Increase your prices
Obviously, you have to be careful with pricing. Having too high of prices lead to losing customers, and may lead to even more cash flow problems. However, it is a good idea to experiment with pricing. You may be leaving money on the table if you set your prices too low. Plus it is a good way to see where you stand with your competition.
2. Ask for deposits
Not everything is fit for a deposit, but for products and services where it makes sense to ask for a deposit, go ahead and ask for one. This helps from dipping too deep into your own pockets to fund projects. Cash flow will see a significant boost if you regularly get into the habit of asking for deposits or down payments. Getting cash upfront for projects means the client will be paying for it to be done rather than you having to fund it and collect later.
3. Offer discounts to customers who pay early
This may seem like it won’t help because of a minor hit to the bottom line, but we’re not talking about a huge discount here. Even a discount as little as 2% will incentivize people to pay early because if they consistently pay early, the money saved over time will add up for them.
4. Send out your invoices immediately
This will help plant the seed in your customers’ minds that they should pay as soon as they possibly can. Use an electronic accounting system to expedite and automate the process as much as possible. Don’t be afraid to use strong language with customers who are past due, but keep it appropriate and professional, obviously.
5. Track your accounts receivables and approach slow payers
If a customer is consistently a slow payer or causes you to lose money (and even big, seemingly lucrative accounts can be money losers) consider approaching them about the issue. They might have a legitimate reason for paying slow and they will likely be amenable to working something out with you. If not, you can always drop them as a customer.
If a customer takes longer to fully pay an invoice on a regular basis, you can offer them a small discount to pay quicker.
6. Scrutinize your customers’ payment history
If a customer regularly takes too long to fully pay an invoice, you can offer them a small discount for paying in full. If they do not want to do that, you can try playing a bit of hardball and tell them you cannot offer them credit anymore.
7. Enforce late-payment discipline
You’ll need an effective collections system in place to ensure timely payment and you’ll need to have fair penalties in place for late payers. It’s not enough to just have those penalties in place, though. You have to enforce them when it’s appropriate. Once customers see you bend and have wiggle room, they tend to push things.
8. Perform credit checks on potential new customers if they’re not paying cash.
This is an obvious one, but if it’s not something you’re doing already, you should start so you can avoid problems in the future. Those with good to great credit do not want to risk their reputation and also have a history of being responsible with financial matters.
9. Switch appropriate clients from project-based to retainer-based accounts
If you provide a service where you get paid per project, see if any of your customers would be interested in paying you a monthly retainer to supply them with a certain amount of services. You can try to entice them to switch to this retainer model by giving them incentives like discounts or value-added services. With a retainer-based account, you make take less money in but it is a guaranteed amount paid per month.
10. Tighten control of your inventory
Having too much inventory can be just as bad as having too little. Calculate your inventory turnover ratio by dividing the cost of goods sold by the average value of your inventory and avoid purchasing more inventory than you need. Suppliers may try to get you buy more with big discounts, but the discount will be moot if you can’t move the inventory.
11. Establish a layaway program
If you sell big-ticket items or your products just cost more than people generally spend in at one time, try establishing a layaway program where people can pay for a product in installments and they receive the product when they are done paying for it. This will give you access to the cash they pay you regularly. Note that special accounting practices need to be followed for layaway programs.
12. Organize your billing schedule
With automated accounting software, you can easily keep track of when accounts get past due and by how much. You can flag these overdue accounts and act accordingly. The software also makes sure there aren’t any accounts overlooked or missed.
13. Encourage the use of payment cards rather than checks
How you accept payment will depend a lot on the nature of your business, but if it’s something you can readily accept debit and credit card payments for, try to get customers to use these methods over checks. Not only will you receive the money quicker, it cuts down on the handling of checks.
14. Encourage “continuity” sales
Offer deals to people who commit to purchasing your products or services over a fixed period of time. Magazine subscriptions are the best example of continuity sales. You pay the publisher for a one-year subscription and you get a discount compared to if you were to buy the issues individually. Try to come up with ways to offer continuity sales on whatever you offer. Your customers get a discount while you get the cash upfront. You will lose out on a little minute, but you end up getting immediate cash to cover daily costs.
15. Set up your terms of service so payment in full upon completion is part of them
For those who offer services for projects, letting clients know upfront that you require payment in full when you complete the required services, not a month or two afterward. If they agree to your terms, they are obligated to follow through with paying you in full when you’re done the work.
16. Stagger payments on long contracts
If paying a deposit or paying in full is not doable for clients, try staggering payment, accepting a percentage on the agreed upon amount when certain benchmarks are hit. Using a construction firm as an example, you can arrange for 15% of the total to be paid when engineering is completed, 35% of the total when supplies are delivered to the site, 50% when you hit an agreed-upon benchmark, 75% when you hit another agreed upon benchmark and the remaining 25% upon final inspection and acceptance.
17. Use change orders where applicable
If you are selling a service that is clearly defined in a contract between you and your client, be cognizant of them asking for additional service that falls outside that scope. If they do, you may be able to issue a change order to collect on ancillary work you’ve been asked to do.
18. Sell your old inventory
This is a good way to get quick cash on hand. Sell your old inventory even if you have to sell it for a huge discount. It’s better to get rid of old inventory and make some money from it than just having it sit around collecting dust. The two benefits are that it frees up space and gives you extra money to work with.