Using Payment Strategies to Manage Cash Flow
Proper cash flow management is a skill every business owner must master for long-term financial success. If you've ever been in a position where you don't have enough in the bank to pay your bills - despite having strong sales - you know how important it is to have an understanding of your cash flow. There are several relatively easy tactics you can incorporate to stabilize your cash flow and manage your business.
Don’t wait to send invoices.
Cash flow distinguishes between invoices you’ve sent and payments you've collected. If you’re owed $5,000, but either haven’t invoiced your client or haven’t received payment, it doesn’t help you pay the bills currently due.
If you find yourself frequently running short on cash even though your sales are good, it might be time to review your billing practices. How often are you invoicing clients? Are you mailing bills or sending them electronically? What are your payment terms? Are you following up with those who aren’t paying by their due date? Identify steps you can take to ensure your invoicing system isn't contributing to cash flow difficulties.
Along those lines, make it easy to get paid faster.
This sounds obvious, but is often overlooked. Today’s clients don’t necessarily want to mail paper checks, which is good because it's one of the slowest ways for you to receive your funds. It’s important to offer payment alternatives to make it easier for clients. This includes the ability to accept card payments and electronic ACH payments.
Pay your own bills on time – but not too early.
While you might be used to paying your personal bills as soon as you receive them, this system can put your business in an unnecessary bind by tying up cash. Setting up payments to be made closer to the actual due date might give you better control over your day-to-day cash flow.
Plan ahead for cash crunches.
It’s not uncommon for businesses to run short on cash from time-to-time. Plan ahead by having a business credit card and/or setting up a line of credit before you actually need one.
Monitor your accounts and cash on hand.
Use technology to manage your cash flow and identify problems before they have a chance to fester. Digital banking tools allow you to track your cash as it moves in and out of your accounts. Treasury management tools – like sweep accounts – can automate the movement of cash between accounts. Invoicing software will track client payments to ensure you're being paid in a timely fashion.
If you experience frequent cash flow issues in spite of strong sales, you should consider working with your banker or accountant to identify potential problems and tools you can use to correct any issues.
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The views, information, or opinions expressed in this article are solely those of the author and do not necessarily represent the views of Citizens State Bank and its affiliates, and Citizens State Bank is not responsible for and does not verify the accuracy of any information contained in this article or items hyperlinked within. This is for informational purposes and is no way intended to provide legal advice.