How to Improve Cash Flow for your Business
In any business, cash flow is king. Yet in many businesses, cash flow is the area that many businesses struggle with.
Even if a customer has had goods or services from you, they are reluctant to part with their money and therefore it can take them some time to pay their invoices.
Huge companies may be fine with long debtor days but for many smaller companies they can be incredibly stressful. Basically you need your customer to pay you as quickly as possible so you can continue to run your business but instead you find yourself working extra hours chasing late payers. So here are a few tips:
Be Clear and Concise:
When you create an invoice, can your client see?
- The date payment is due
- How much payment is required
- Payment options method (bank transfer, cash, cheque, card)
- Payment options timing (pay now, by instalments, pay on due date)
Offer Incentives
To motivate your clients to pay on time, you could offer them a small discount for example 5% off the total bill for an invoice paid within 2 weeks of the invoice date. This not only improves cash flow but a client will see getting an early payment discount as added value.
Charge Fees for Late Payment
Working the opposite way as the above but hopefully with the same result; either an early or on-time payment. Encourage clients to pay you on time by charging a fee for a late payment. If you communicate the terms and conditions around late fees, clients will not be surprised if they are charged for late payment.
If you are going to charge fees for a late payment, it is usually effective to give some warning. Send clients an email saying “payment is due in 10 days time and if it isn’t received, a late payment fee will be applied”. This gives the client plenty of time to respond and not only helps them to avoid a late payment fee but gets the invoice paid and money in your bank account.
Use Technology
There are many systems available to help businesses track invoices and monitor payments and to follow up clients who have missed payment deadlines. With an automated accounts system, you can keep track of the status of each invoice, who has paid and what is outstanding. You are able to set up automatic reminders which not only improves your cash flow but saves you a lot of administration time.
Using the above strategies will help you improve your cash flow and ensure that you are getting money in as quickly as possible.
At Camfield Chapman Lowe, we recommend using XERO accounting software. Call us on 01908 583800 for a demonstration on how using XERO works or to find out more first, read our article on XERO
