Your company's cash flow can make or break your small business. Indeed, your cash flow is vital to your ability to pay your rent or mortgage, pay your employees on time, submit payment for inventory orders or manufacturing, buy supplies for your company, and give you and your family an income on which to live. When you must count yourself among the 50 percent of small business owners dealing with poor cash flow today, it is time for you to address this dilemma or risk going under altogether. With that, these suggestions can help you achieve and maintain a positive cash flow for your small business.
Your ability to send out invoices on time and have these notices paid on time by your clients is crucial to your company's survival. As much as you may dread billing your customers, you should immediately get past this disdain and resolve to approach this task in a more productive manner. Each invoice you send out to your clients should have these details included on them:
- Highlighted Payment Due By date
- Clearly stated penalties for late or defaulted payments
- Stipulated rewards for early payment or payments made in cash
While you may believe that these details appear to be harsh or perhaps a bit too straightforward, they can also help clients remember to pay you on time. These on-time payments will help you increase and maintain your cash flow. Even so, you may soften any perceived blow by including a personalized note or a cheery email, particularly if you want to cultivate an agreeable relationship with your local customers.
Along with sending out invoices on time to your customers, you can also increase your cash flow by accurately keeping your company's books. If you lack the time or the talent for this task, you perhaps should hire a professional bookkeeper or chief financial officer who can look after your financial records and make sure that your business is bringing in more than enough money to survive.
Even if you hire a bookkeeper or CFO, however, you should avoid allowing this employee unrestricted control over your company's books. When you retain control over the books and keep yourself informed about your financial transactions, you can make sure that your company is moving in the right direction. You also minimize the risk for monetary theft or fraud.
Consideration for Bank Loans
Many business owners like you dread having to approach a bank for a loan. You may prefer going out of business altogether than going through the stressful process of applying and possibly being turned down for a loan. Even so, you should maintain a good relationship with the bank of your choice.
If you have open accounts at your preferred bank, for example, it can help you to know the loan officers' names and office hours. You may also ask for a business card and keep it in your wallet for future reference if needed. However, you would do well to use bank loans as a last resort and only as a means to overcome cash flow problems that are too difficult or beyond your control to overcome.
Factoring for Cash Flow
When you want a short term resolution for your cash flow problems, you can consider factoring as a means to get the money for your business. Factoring can provide you and your business with several notable perks like:
- Quick payment for your invoices
- Money to meet payroll, rent payments and other expenses
- No credit risk to your business
- Reduction of bad debt or money owed to you from creditors
- Short term relationship and no extended payments as with bank loans
Unlike a bank loan, factoring lets you sell your invoices and receive payments for which you otherwise may have had to wait weeks or more to be remitted to your company. Because the credit of your clients is checked and not that of your business, you also incur no risk to the credit score of you or your company. You receive prompt payment to make payroll, pay your rent, order supplies and more. You also avoid having to make payments to the factor for months at a time, as you would when you borrow money from a bank.
The cash flow for your business can be crucial to your survival and profitability. Because many business owners today experience cash flow problems, you can benefit by knowing how to address this challenge head on without undermining your company. These strategies can increase the money coming into your business and give you cash that you need to pay bills, order inventory and more. When you use these suggestions to your advantage, you may be able to ensure the future success of your company and your status as a competent business owner.