Maximizing cash flow is a priority for businesses of every size. But getting it right can be a challenge—you need to eliminate manual bottlenecks and errors while establishing a smooth flow from sales quote to approved order, successful order to fulfillment, and timely invoicing to payment. A best-in-class order management process results in a faster path to recognized revenue, improved operational efficiencies, and higher customer satisfaction and renewals.
For small businesses, the most important aspect of cash flow management is avoiding extended cash shortages, caused by having too great a gap between cash inflows and outflows. You won’t be able to stay in business if you can’t pay your bills for any extended length of time! A cash flow gap occurs when your cash inflows and cash outflows don’t keep pace with each other, leaving your business short of cash. Cash outflows may repeatedly preceed cash inflows. All kinds of expenses, from purchasing materials necessary to do the work through licensing or permit fees, may have to be paid out before your small business gets paid for the work completed.
How do you close this cash flow gap and keep your business solvent? We can help you develop steps to shorten your cash flow conversion period, so your business can bring in money faster. These steps may include:
1) Preparing customer invoices immediately upon delivery of your goods or services to the customer. If you wait to prepare your invoices at the end of the month, for example, you may be adding as many as 30 extra days to your cash flow conversion period!
2) Monitoring your customers’ use of credit and adjusting their credit limits accordingly.
3) Offering customers a discount for paying their invoices early. For instance, if your usual policy is to have payments due in 30 days, offer a small discount such as 2 percent to customers who pay within 14 days.
4) Establishing a deposit policy for works in progress. For example, if you deliver a service, such as software development, home repair, or landscaping, you can adopt a policy that customers pay a certain percentage of the total invoice up front before the job begins.
5) Tracking your past-due accounts and actively pursuing collections. Most accounting software programs let you easily track past-due accounts, but you also need to have a clear process for pursuing collections. Such a process might involve sending out a series of letters letting your customer know that his or her account is past due and what steps will follow if he or she does not pay, such as turning the account over to a collection agency.
You have to have money coming in regularly to maintain an adequate cash flow for your business, not just endlessly streaming out. Monitoring your cash flow and taking steps to shorten your cash flow conversion period will go a long ways towards eliminating those dangerous cash flow gaps.
If these are concerns in your business, contact us so we can assist you in developing a process that works for your Company!