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Easy ways to better manage small business cash flow

Jeff Haden
Business Journalist

Jeff Haden is a bestselling ghostwriter, speaker, Inc. Magazine contributing editor, and LinkedIn Influencer

Jeff Haden
Business Journalist

Jeff Haden is a bestselling ghostwriter, speaker, Inc. Magazine contributing editor, and LinkedIn Influencer

Cash flow is the lifeblood of many small businesses. Jeff Haden explores some easy ways small business can keep on top of it.

Revenue is great.

But in order to actually benefit from that revenue, you first have to receive it.

Quick example: last year I self-published a book and one of the outlets I use to sell it is Amazon. Their payment terms are net-60, meaning they pay sixty days after the last day of each calendar month. That means if I sell, say, $10,000 worth of books on March 1, I won’t receive that money until May 31 – nearly three months later. And that means if I had significant expenses tied up in creating the book (fortunately, I didn’t), then I might have had to wait many months before seeing any return on that investment.

Keeping an eye on financial metrics is a key to success (here are four other simple metrics critical to small businesses), and one metric you can’t ignore is your cash flow: the movement of money into and out of your business.

Here are some cash flow tips for small businesses.

Woman looking over papers

Decrease your accounts receivable

Receivables are money your business is owed. Any time you mail an invoice, the amount billed is a receivable until the funds are actually received.

Retailers, restaurants, and e-commerce sites typically have extremely low receivables since they’re typically paid with cash or credit card.

If your sales are predominately invoice-based or B2B, take a tip from retailers. Set up a system for taking credit cards; many businesses prefer the simplicity. If you have reps in the field, equip your employees with apps that allow mobile credit card processing.

Anything you do that makes payments easier automatically decreases your accounts receivable and puts your revenues where they belong – in your account. 

Look at your processes

Look at your internal billing processes and strive to send all invoices within one day of products or services rendered. After all, the longer it takes you to invoice, the longer it will take for you to get paid.

Also take a close look at your payment terms. Net-60 payment terms may make it easier to convince a customer to make a purchase, but that also means you’ll wait a long time for your money. Consider shortening the term, especially for new customers, and even providing a small discount for payments made within, say, five days.

While you may have to give up the 2 per cent discount, you’ll probably reap the benefits of having much quicker access to the remaining 98 per cent the customer owes.

Increase your accounts payable

While you want to get paid as quickly as possible, to improve your cash flow you’ll want to pay as slowly as possible (within reason, of course.)

So if your terms are net-30, set up automated systems that ensure you pay on the 28th each month. And when you’re negotiating new contracts, don’t focus solely on price – also try to get more relaxed payment terms.

Of course your goal isn’t to take advantage of people. If your terms are net-30, then always pay within thirty days. An easy way to do that is to pay your bills using online banking. That way you won’t be late, and will never have to claim a cheque is in the mail.

Always have a backup in place

Credit cards are useful for when you’re in a pinch, and a good alternative is a bank line of credit.

The key is to have your credit line in place long before you need it. Talk to your banker and explain that you’re setting up a contingency plan to manage any short-term cash flow issues that might arise.

Do that now, before you need it. The easiest time to qualify for a loan or a line of credit is when you don’t really need it.

And that way, if you ever do need a quick infusion of cash, it’s there.

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