Cash flow is the life source of any business and, unfortunately, is one of the main reasons small businesses tend to fail. The goal is to have more money flowing in to your business than there is flowing out. If the majority of your cash is going out to vendors, payroll and other expenses without any income, your business is going to sink. There are several reasons this could be happening. Maybe you’re behind on billing your customers, maybe you’re buying more product than you’re actually selling, or maybe things are slow around the office. Whatever the reason is, there are ways to fix it. Here are some tips to ensure you are on top of your receivables and maximizing the rate at which money is coming into the business.
Organize a billing schedule
Some companies have different clients with unique needs which can make the billing process a little hectic, especially if you, the business owner, are the one billing your clients. For example, in my office, we have some clients that have a monthly fixed fee, and other clients that we bill based on the amount of time spent working. We bill clients that are on a fixed fee on the 25th of each month and bill those that are on an hourly rate on the 15th and last day of the month. Your clients will get used to a schedule and will be expecting a bill from you which will help you receive payment quicker.
Set up ACH as a payment option in QuickBooks.
QuickBooks gives your clients the option to pay the invoice online and the money will be deposited directly into your bank account that is linked to QuickBooks. This eliminates the lapse of time it takes for you to receive a check from the customer, and the time it takes a customer to remember to write the check. This is an effective way to get invoices paid immediately.
Create incentives/penalties for customer payments.
A business will always have those few clients that take entirely too long to pay for one reason or another. On the flip side, there will be those clients that you have no problem with and are always on top of their payables. When establishing payment conditions make sure to emphasize the fact that receivables that are late past a certain point will have a late penalty attached, or you may be taken advantage of leaving you the last vendor to get paid by that client. Penalties could include interest and work stoppage. Another thing to think about is giving your clients incentives (such as a discount) when invoices are paid early.
Slow down your accounts payable.
This pretty much speaks for itself. When given terms on a vendor bill, wait until the end of the terms to pay it so you have some time to receive payments from customers. You could also use a credit card to pay your vendors. This way you give them payment right away, but have a bit of time until your credit card payment is due.
Sit down weekly and review your receivables.
Set a time weekly to sit down and review your company’s accounts receivable aging report to see who has and who has not paid. This will keep everything fresh on your mind and will prompt you to reach out to any of your customers that are past due. For example, we sit down every Monday morning and review an accounts receivable report during our weekly staff meeting and work together on collection efforts.
If you’re feeling overwhelmed, don’t sweat it. Devine Consulting is an accounting consulting company that is here to make your money work for you. We provide bookkeeping services and handle your back-office accounting so you can focus on what really matters, growing your business. Give us a call at (281) 545-4000 for a free quote, or you can tell us about your businesses financials online here.