Cash flow can be problematic for businesses of all shapes and sizes but for small and medium sized businesses it can be a serious stumbling block.
So what can you do to ensure delayed payments and debts don’t mount up and start having a negative impact on the running of your business? There are plenty of practical steps you can take to guard against cash flow problems.
Perhaps one of the most important things to do is to be aware of the issue. Optimism and positivity can be great in business and are characteristics of many entrepreneurs. However, when it comes to cash flow it pays to be realistic. Some clients will routinely try and pay their invoices late and unfortunately at some point a client will probably find themselves unable to pay on time or at all.
Plan for peaks and troughs in the year. Think about times when you will have expensive outgoings. If these coincide with times when cash flow may be slower then think about where you can reduce your outgoings even if it is only for the short term.
Set clear payment terms
This is something that small business owners overlook but it is really important. Unless you are clear about your payment terms then you won’t be in a position to forecast and chasing payments will be more difficult.
Send your invoices out as soon as work is completed. This is something which is within your control so is one of the key things you can do to give your business the best chance of receiving payments on time.
Keep in touch with customers and communicate with them. Nobody likes chasing payments but a gentle reminder can work wonders particularly when you already have a positive relationship with the customer.
Make it easy
How businesses receive payments vary and different methods are appropriate for different types of business. If you can offer a straight forward method of payment to your clients this will help. Online payments are popular so where possible offer this as an option. Most people would really prefer not to send a cheque, equally most businesses would prefer not to receive payment by cheque these days so offer alternatives.
If cash flow is a concern then consider the options available. Using a credit control service could be the perfect solution for a small business start up. If the business is asset rich then asset based lending could be something to consider as a way of releasing cash tied up in the business. This can be a great approach to finance growth in an SME. Invoice finance is another option and one which is popular with many small businesses looking for a way to improve their cash flow.