Top Cash Flow Strategies for Small Businesses

Running a small business can be very complicated, and the owner may be distracted by many things. Frequently, I see cash flow management become a secondary duty when business is booming, and there is a perception that it will continue forever. I also know that pushing your customers for payment is uncomfortable.

Unfortunately, employing cash flow controls and strategies is even more critical when the times are good. Here are some proven accounts receivable cash flow strategies for business owners to keep their checking accounts full.

Coach Dave’s Cash Flow Improvement Strategies

Review Your Entire AR Process – Most small businesses have a haphazard AR process. I highly recommend that you develop a strict timeline and method and create a series of urgent letters you can email to ensure you get paid quickly. The squeaky wheel gets the grease.

Send out Invoices as soon as the Work is Complete –  The faster you send the invoice to the customer, the quicker you will be paid. Most business owners are slow to send invoices when they are concentrating on the business’s operations.

Require a Deposit – Revise your payment policy so that you get a deposit when the purchase order is issued.

Hire a Part-timer to Manage Accounts Receivable – Cash flow improves dramatically if someone is accountable for the timely management of AR. If the leader solely owns the execution, it always gets deferred.

Automate Accounts Receivable Follow-up – Use software to automate reminders and follow-ups, reducing administrative lag and human error.

Run your AR Report Every Week – Run the AR aging report and study what is happening. Pay particular attention to invoice aging. Work on invoices older than 90 days first, then >60 days, and then >30 days. Once a week, call the laggards, and your cash flow will improve.

Learn your Customer’s Pay Cycle –  Many clients bill on different cycles.  Once you know what they are, you can shoot the gap and make the call just before the bill is due.  Call your client the day before the payment is due.  You will be amazed at how well this works.

Conduct Credit Checks – Investigate the creditworthiness of your prospects before offering them terms.

Take Advantage of Early Pay Discounts – Negotiate with your vendors for discounts when you pay early.

Accept Online Payments – Offer fast digital payments to speed up cash flow.

Create Late Payment Communications: Develop a series of increasingly aggressive late payment emails or letters for 30, 60, and 90 days overdue customers.

Change Your Payment Terms –  Tighten your payment requirements.  For example, frequent late payers must have a credit card for all future orders. You can also negotiate customized payments for special orders.

Switch to Just-in-time Inventory – Reduce your onhand inventory and order when you need it and what you need.

Offer Early Payment Discounts – Incentivize fast payments with a small discount.

Change the Shipping Schedule – Consider scheduling the faster-paying customers before slow payers.

Enforce Late Payment Penalties – Make it clear on invoices that there are late payment penalties to encourage clients to pay on time.

Develop Relationships with your Customer’s Account’s Payable Department –  A relationship with someone who can move your invoice to the top of the stack is well worth the effort.  I have a client that sends candy bars to their contact.  It works.

Use your Salespeople to Push for Timely Payment –  The most robust client relationship is usually with your salesperson and their counterpart at your client. Many salespeople dislike doing this, but the effect can be powerful.

Hire a Quality Collection Agency for the Last Resort  –  A few clients always force you to use this method.  This customer should immediately be put into the never-do-business again column.  I have seen some efficient and respectful collection agencies that can collect old receivables and keep your customers if you decide to do that.

Cash Flow Strategies: Conclusion

These are my top cash flow strategies for managing your accounts receivables.  Your business does quality work, and you deserve to be paid on time.  Please don’t shy away from collecting the cash that you have earned.

I have many more ideas for your business in the blog section of my website.  Click here and learn more.

Thanks,

Coach Dave