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Five Quick Ways to Speed Up Cash Flow

Five Quick Ways to Speed Up Cash Flow

At one point or another, almost every business runs short of cash. Whether due to normal fluctuations in demand or an unexpected decline in sales, cash shortfalls are the bane of every company, and are responsible for sleepless nights for many business owners.

Yet, there are a number of simple ways that you can reduce your dependence on your company's line of credit and increase the cash that you need. Here are five no-cost methods to try:

Increase Receivables Collection Efforts: This is the easiest and fastest way to generate cash but, surprisingly, most companies do a terrible job of it. Start by calling all customers whose invoices are between 25 and 30 days old to ensure that they have your bill and to find out when it is scheduled for payment. These are the easiest collection calls to make and they often result in faster payment. And, it allows you to quickly rectify problems that may delay your check.

Get Payment In Advance: Another often overlooked technique is to simply ask customers for advance payment, or for a partial payment for goods and services. This approach is especially valid with large purchases, or on work where you'll incur significant expenses before being able to deliver the final product. Most customers will agree to such a request without asking any questions.

Invoice More Frequently: Many companies send out invoices once a month, typically at the end of the month. That gives buyers who purchased early in the month up to 30 additional days to play with your money. The frequency with which you prepare bills will depend on your business, but most companies can justify preparing invoices at least weekly.

Shorten Your Payment Terms: Most accounts payable departments schedule your payment based on the terms printed on your invoice. If you provide 30-day terms, don't expect to get paid before then. However, many customers won't even notice if you change your payment terms to 15 days, or request payment upon receipt of your invoice. You'll still have to nudge the same "slow pays," but your good accounts will probably process your invoice more quickly.

Accept Credit Cards For Payment: This isn't really a no-cost method, since you'll have to pay a service fee to the bank that clears the transaction. But, you'll get paid within days and eliminate much of the clerical support required to follow up on payment. Those savings alone often more than offset the service charges. And, your customers might even thank you for the frequent flier miles they pick up by using their credit card.

There is, of course, one other important way to quickly generate cash for your business, and that is to increase your attention to sales. In all but a handful of cases, increased sales will make cash flow problems disappear.

William von Achen is president of Strategic Management Resources, an executive coaching and management consulting firm offering advice and counsel to business owners and senior executives. For more information visit our web site at http://www.smrweb.com.

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Five Quick Ways to Speed Up Cash Flow

Small Business