One of the biggest challenges for small businesses is managing cash flow. Often it seems there’s not enough cash to meet all obligations, so it makes sense to speed up cash flow when and where you can. Here are five tips you can use to get your cash faster or slow down the outflow.
1. Stay on top of cash account balances.
If you’re collecting money in more than one account, be sure to move your money on a regular basis when your balances get high. One example could be, a PayPal account. If money is coming in faster than you’re spending it, transfer the money to your main operating account so the money isn’t just sitting there.
2. Invoice faster or more frequently.
The best way to smooth cash flow is to make sure outflows are in sync with inflows. If you have a payroll weekly yet only invoice monthly, your cash flow is likely to dip more often than it rises. When possible, invoice more frequently or stagger your invoice due dates to smooth out your cash balances.
Take a look at how long it takes you to invoice for your work after it’s been completed. If it’s longer than a few weeks, consider changing your invoicing process by shortening the time it takes to send out invoices. That way, you’ll get paid sooner.
3. Collect faster.
Got clients who drag their heels when it comes to paying you? Try to get a credit card on file or an ACH authorization so you’re in control of their payment.
Put a process in place the day the invoice becomes due. Perhaps the client has a question or misplaced the bill. Also, be aggressive about following up when the bill is 45, 60, and 90 days past due. Turn it over to collections quickly; the older the bill is, the less likely it is to get paid.
4. Pay off debt.
As your cash flow gets healthier, make a plan to pay off any business loans or credit cards that you have. The sooner you can do this, the less interest expense you’ll incur and the more profit you’ll have.
Interest expense can really add up. If you have loans at higher interest rates, you could try to get them refinanced at a lower rate, thus helping you save on interest expenses paid.
5. Reduce spending.
You don’t always have to feel like you’re sacrificing in order to reduce spending. Look at your expenses from last year, ask yourself:
What did you spend that was a really great investment for your business?
What did you spend that was a colossal mistake?
What do you take for granted that you can cut?
Where could you re-negotiate contracts to save a little?
Where could you tighten up if necessary?
Managing cash flow is always a challenge, these tips will help give you a little cushion to make it easier.