When you have employees to pay and invoices to take care of, cash flow is a serious concern. One of the biggest mistakes businesses make is waiting until finances are in trouble before considering their financing options. Make sure you always have money in your business bank account by following these tips.
- Set Up an Accounts Receivable Policy
The first step in making sure your customers pay you on time is establishing a solid accounts receivable policy. You need to outline when invoices are due (within 30 days of receipt, for example), as well as whether there are any late fees for invoices submitted after the due date.
Communicate your payment policy with your existing customers and make it one of the first things new customers see so there is no chance for miscommunication. Once customers realize that you mean business about getting paid on time, they’re more likely to pay your invoices faster.
If you have clients who simply refuse to meet your deadlines, talk to them individually. There may be a financial problem they’re struggling with that they don’t want to announce publicly. Be generous and offer payment terms they can manage.
- Consider a Working Capital Loan
You know you’ve got money coming in, but you can’t afford to wait around until your client pays you to take care of your own accounts receivable. Luckily, you can get quick access to your accounts receivable with a working capital loan. You get loaned the amount you’re owed by a client, plus a small fee.
The benefit is you get your hands on cash now, rather than waiting on a client. Sometimes time is of the essence when it comes to paying your own expenses, and this is a fantastic way to keep the cash flowing.
- Put Money Aside
It’s tempting to take everything out of your business account to pay yourself, but you’ve got to set money aside in savings to cover yourself for a rainy day. Even setting aside just 10 percent of every paid invoice can quickly add up, providing you with a cushion for those times when cash just isn’t flowing.
Consider a high-interest savings or investment account for this money. Move it out of your checking account so it doesn’t accidentally get spent.
- Plan Your Expenses in Advance
Some expenses come up unannounced, like replacing a broken printer. But others, you can plan for. If you know you attend a specific conference every year in April, you can set aside money for that trip during the 12 months before the event. That way, you don’t have a giant expense in April that you really can’t afford.
Keep an eye on your technology, as it will always need to be replaced. If you’ve been having trouble with your computer, start socking away money so that when it goes kaput, you can pay for a replacement. Planning ahead also gives you the chance to look for sales.
- Run Lean
There are likely some expenses you could cut back on or eliminate completely in your business. Buy office supplies in bulk to pay less per item, and look for products you use regularly to go on sale. Amazon offers a Subscribe and Save program where you can save 15 percent or more on items you need every few months.
- Keep an Eye on Expenses
If you don’t monitor your bank account, you could miss expenses that are costing too much. For example, if you cancelled your Wall Street Journal subscription but are still being charged for it, you’re wasting money every month that you could put back into your business.
Monitoring your accounts also helps you keep an eye out for credit card fraud. Your bank should easily reverse any fraudulent charges on your account, but you’ve got to consistently pay attention to notice anything out of the ordinary.
- Charge More
If you’re barely making profit in your business, assess your prices. If it’s been awhile since you raised them, it might be time to do so. You want to find the balance between a pleasant profit margin and pushing customers away by too-high pricing.
Ease into your price increase. Start by only charging new clients the higher price. If you can’t afford to grandfather existing customers in at prior prices, give them several months’ notice that you’ll be increasing prices down the road. This helps them not feel jolted by the change.
Don’t wait until creditors are knocking at your door to implement these effective cash flow tips. Whether your coffers are full or nearly empty, being proactive about your finances will save you money in the long run.
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