Managing cash flow is a big challenge for many small businesses. As a small business owner, you have ongoing expenses such as salaries (including your own), payroll taxes, rent and utilities and loan or credit card payments – expenses and bills that you have to pay on time to keep your business open and maintain your credit. But you also may have times when sales are slow and existing customers are even slower to pay. How do you make it happen? Here are 11 creative cash flow strategies to bolster your business.
Set a minimum transaction amount for invoicing.
If you sell a variety of products, you may have some customers who want to be billed even though they're making a small, one-time purchase. If you get many requests to bill for small purchases, consider establishing a policy that all orders under a certain amount of money must be paid for at the time of purchase. You speed cash flow by getting your money up front, and you save on the labor cost for invoicing and following up when an invoice isn't paid.
Offer a discount for prepayment. Surprisingly, this can work in many industries. A dry cleaner near our office offers a small discount per item to customers who pay for their dry cleaning when they drop off their clothes (instead of paying when they pick them up.) Landscapers and tree sprayers often send out promotions offering past customers a service contract and discount for payment in advance. We've even used this tactic selling advertising to long-term site sponsors.
Suggest related purchases
It's a lot easier to get a customer to make a second purchase after they have already committed to the first one. This works as well for service businesses, incidentally, as it does for retailers. Did you customer want a teleseminar transcribed? Would they also like that transcript formatted and uploaded to their website (for an extra fee)? Do any of your tree-spraying customer have pets? Would they like you to spray the grounds for ticks while you're there?
Mobilize your credit card processing capability
If you are a repair person or other service provider who performs your services at your customers' locations, or if you sell at tradeshows, fairs, house parties or other mobile locations, get your customers to pay on the spot with their credit card. New devices and software that work with smart phone make this easy and practical for many small businesses.Be willing to accept ACH payments
In our business we've had a number of our larger, repeat customers asking permission to transfer payments directly to our bank account. At first I was hesitant. With all the security breaches reported in the news, giving out banking information seemed risky. I mentioned my fear to the branch manager where I bank, and she had a good suggestion: to limit the risk, set up a separate bank account with a very small amount of cash and use it to receive those incoming ACH payments. Once a payment clears, transfer that amount of money out of the second account and into the main business account.
Reduce your costs of doing business
Look at your regular expenditures and see how you could reduce them. Could you significantly lower costs by purchasing a voice and Internet access package from a different vendor? Can you renegotiate your lease? Or if your lease will be up soon, have you shopped around for lower-cost office space?
Contact former customers
Are there any customers who were good customers, but haven't ordered lately? Contact them to remind them about your products or services. If possible, call to verify that the contact person, phone and mailing address are still the same. Find out if they still buy what you sell. Or, suggest an additional product to them.
Check credit ratings
To improve your chances of getting paid (and getting paid on time) check the credit rating of new customers who place large orders.
Do not extend credit to businesses or individuals who show up as risky on the credit check.
If a company has a history of paying very late, has tax liens or multiple problems listed on their report you need to get paid up front.
Put established customers on pay-in-in advance status if they've filed for bankruptcy, even if they've "emerged. Emerging from a bankruptcy doesn't mean the company is definitely back on sound financial footing. If the company's creditor turn tail and run again, you may never get paid. Then, you'd be out any inventory and labor costs you incurred. Yes, if you follow this tactic, you might lose the customer. But then again, you might not. Either way, you'll sleep better knowing you aren't going to lose money on a sale.
Sell your receivables to get paid faster
There are various invoice factoring companies that will buy receivables from you for a discount off their face value. You get paid less than you would have if you waited for your customer to pay, but you get the money now, not a month or two from now. Before you go this route, be sure you have a big enough profit margins to make factoring a viable choice and that you're aware of all the costs and any other ramifications of factoring your invoices. Then shop around to find the best factor for your company to work with.
Need more ideas? Here are more ways to improve cash flow.