It takes cash to grow a business. Everyone knows that. But, not everyone is effective at improving cash flow. Here are 12 ways to reduce your cash cycle and improve your cash flow. And oh by the way, stop saying, “well, this is just the way it is in my business.” Because it doesn't have to be.
How many of these can you use in your business to improve cash flow?
- Have your available cash reported DAILY. Chart it against accounts receivable and accounts payable weekly. You’ll learn so much about your business when you see how the cash is flowing on a daily basis.
- If you want to be paid sooner, ask. Most firms and governments will pay considerably faster or even prepay if asked (sometimes asked repetitively).
- Give value back for customers that pay in advance or on time.
- Don’t be shy about asking for your payment at time of service.
- Get your invoices out quicker. Make sure invoices are timely and followed-up. One company hired an extra person to focus on invoicing. This person called clients to proactively find out how they wanted their invoice structured; and to make follow-up phone calls. In addition, they change the color of their invoice from the standard white to blue so it is noticed in the huge pile of invoices sitting on the desk.
- Understand why your clients are paying later – many times there are recurring mistakes on the invoice or the invoice is not structured to make it easy for the customer to reconcile.
- Understand your customers’ payment cycles and time your billings to coincide.
- Pay many of your own expenses with a credit card so you can play the float and get your own customers to pay by credit card.
- Help your customers improve their cash so they can pay you – offer them leasing options, for instance.
- Shorten product and service delivery cycle times. The quicker you complete projects, the quicker you get paid.
- Have such a valuable product or service that you have some leverage with your customers to pay sooner.
- Of course, reducing cost of goods helps improve margins and profit, which improves cash position.
Every business I’ve worked with could dramatically improve their cash flow. And what it takes to reduce your cash cycle almost always leads to much greater operational excellence and customer service. You don’t have to cheat your customers or suppliers to achieve better cash flow.