Cash flow is the lifeblood of a business, however all businesses no matter how big or small they are encounter cash flow challenges.
According to a report by the Australian Small Business Family Enterprise Ombudsman positive cash flow was cited as among the top three stress points for business operators. Another study by Wakefield Research showed that small business owners have lost out on no less than $10,000 in potential earnings after nixing projects because of cash flow woes. Unfortunately these aren’t isolated incidents; 63% of small to medium enterprises have cash flow problems more than once a year.
What can be done to help with these issues? Here are three things that can help:
This is the leading problem with cash flow problems in a business, in fact Wakefield Research found that close to one-third of small business owners had at least $20,000 in past due receivables.
Let’s face it if cash isn’t coming in, services or product isn’t going out, not to mention problems affecting payroll, inventory, utilities and a host of other costs associated with business management.
There are a variety of strategies you can adopt or implement that can help with this and they include:
- Getting on the same page
- Make past-due receivables a priority
- Offering incentives for early payment
- Subscription based arrangement
As with many things in life a breakdown in communication can be the problem. If customers or vendors are unclear about when a payment is due and what’s owed then they obviously won’t pay when you need them to. The best way to avoid these misunderstandings is to be proactive and clearly state when your bills are due.
This needs to be done from when you first form a relationship with a vendor or client so that everyone is clear about expectations moving forward.
It’s never a comfortable feeling to have to request payment especially when a client or vendor is new and you want to come across as appreciative of their business. However, respect goes both ways so take the emotion out of it and make your receivables a priority.
What we mean by this is that if a receivable is not paid the day it’s due, contact them within 24 hours to ask why. It could be that they have misplaced the invoice or that they misunderstood the terms.
They could also be having cash flow problems themselves in which case you may be able to organize a payment arrangement so that you can stop problems arising going forward.
Clients and vendors who pay early help you to avoid cash flow issues later on. With this knowledge in mind you may want to offer some kind of incentive for early payment. A discount is often the kind of incentive that people appreciate and take advantage of.
Depending on what service or product you supply you may like to move your business (or part of it anyway) to a subscription based model. This is a fantastic model to keep consistent cash flow in your business