Cash Flow Problems: 6 Ways to Speed Up the Flow

Posted by Factor Funding Co. on February 17, 2012

Many businesses experience cash flow problems at times throughout the year. To keep the business operating at full capacity, though, it's important to learn ways to fix cash flow problems. Here are six tips that can help business owners even out their operating capital.

1. Change the client payment terms.

A quick way to increase cash flow is to make a change to the payment terms you've been using. For example, if your usual payment terms are net 30 change them to net 25 to make sure you get your payments sooner. Or if you've previously been requesting a 25 percent down payment, increase it to 50 percent for your first-time clients or for those projects that you expect to take some time.

2. Give quick-paying customers a discount.

Offer a discount for customers that pay their invoices early. Stagger the incentives to encourage swift payment. For example, you might offer a 3 percent discount for customers who pay within 10 days and a 5 percent discount for those who pay within 5 days. These perks may motivate clients to submit their payments sooner.

3. Break up payments for long projects.

If you have a project that's taking a long time to complete, add a few payments during the middle of the work. Ask the client for a down payment then schedule one or two payments in the middle of the project and conclude with a balance due payment when the work is completed.

4. Add new services to increase revenue.

Consider offering new services for existing clients to encourage them to continue paying for your work. You might provide a file storage service for customers who have extensive records with your business or you might offer record keeping as an optional service.

5. Hold on to the project until it's paid off.

A good way to ensure you get paid for your work is to keep control of it until it's completely finished. By only releasing the work after it's been paid in full you'll guarantee that you'll receive your payment on time.

6. Try to adjust your contracts with vendors and workers.

If you use a group of freelancers for certain projects try to renegotiate your contracts with them when you're between jobs. You might ask for a longer payment period or for a lower per hour wage and then agree to pay the remainder of the wages after the project's been paid in full. Open up your vendor contracts for re-bidding and then work with the vendor who quotes you the lowest price.

Cash flow problems can put a crimp in any business. By using additional creative ways like invoice factoring you'll be able to keep your company operating at its best no matter the season.

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