According to the Small Business Administration, not managing your cash flow is one of the leading reasons small businesses go belly-up. So here are a few tips to help ensure your cash flows quickly from your customers to your bank account…and from there, to your own creditors, employees, and you.
1. Adjust your billing cycle.
If your business typically bills net 30 after you deliver your product or service, it’s like you’re loaning your customers money for a month. That might make sense when the economy is booming. But when it’s slow? Not so much. You can help keep the cash flowing by billing net 15 if you normally bill net 30. Better yet, ask for a retainer or a deposit up-front. You bad debt expenses should go down, and you’ll have more cash on hand. (Yes, you may lose a customer or two. But do you really want customers who can’t afford to pay net 15?)
2. Adjust your pricing strategy.
It’s a cliché, but it is all about volume. A small price increase across a wide customer base can put a lot of new money in the bank. Of course, you have to be strategic. Make slight adjustments. Make sure your prices remain competitive. And if customers ask, you can honestly say that your prices should be even higher.
3. Adjust your collections processes.
So you’re a nice guy. Or a nice gal. You’re forgiving. Understanding. Sympathetic. Well, get over it! In a recession, you can’t afford to be “nice” when it comes to collections. Stay within the law, of course, but be aggressive when it’s time to collect overdue accounts. Hire a professional collection agency if necessary. Need some incentive? How’s this: the money you collect today may be the money that backs your paycheck tomorrow. I hope these tips will help you keep the cash flowing in your business…no matter what the economy is doing.