Holidays are winding down…you’ve enjoyed them tremendously. You’re refreshed and renewed. Your resolve is strong! You’re going to make a profit this year and you’re ready to step back into the work week–running your business profitably. One of the fastest ways to help with your cash flow is to collect money quicker from your current clients.
If your accounts receivable balances are edging up and getting older and older each month, then it might be a good time to bring out the aging reports. But what if you started looking earlier in the cycle to see what you could do to collect the sales even sooner? Let’s take a look at five potential changes you can consider that will speed up your cash flow, reduce aging receivables, and possibly reduce lending costs in your business.
- Get paid in advance.
Getting paid in advance manifests itself in a number of ways:
- Prepaid gift cards
- Prepayment plans
- Monthly or project retainers
If it’s common to get paid in advance in your industry, then all you need to do is focus on doing more of it. If it’s not common in your industry, I encourage you to see how you might apply one of these ideas to your industry. You may be able to invent an entirely new way of doing business within your industry. If I’m working with an unknown client, I’ll ask for a deposit when I’m scheduling the appointment. This not only brings the cash in advance, but it also makes sure that they are committed clients.
- Increase your cash-equivalent payment choices.If you’re not already able to take the following forms of payment, then it may be time to sign up for some of the standards and maybe a few of the unusual methods of payments.
- Credit cards, especially MasterCard, Visa, Discover, and American Express
- Wire transfers
- Cloud-based bill payment systems
It’s surprising how many business-to-business payments come through PayPal, so if you don’t have this one as an option, you might want to consider it. I love my PayPal account both for paying and receiving money for my business. There is a small service fee for receipts-just as with credit cards.
You may or may not need all the credit card types, but having one or two certainly expedites the payments that customers like to make. If you are using QuickBooks, the Intuit company has reasonable merchant account fees and they charge only fifty cents for their cloud based bill-receipt system. For my clients, I use an email invoice with a link so that they can pay by credit card or use the cloud-based payment system.
If you have overseas clients, being able to easily accept wire transfers keeps it simple if the client does not maintain a bank account in your country’s currency. And although most wire transfers still need to be handled manually, you can systematize and automate the process as much as you can by having written procedures for your clients.
- Streamline your time and billing system.If you can bill faster, you can collect faster. Take a look at your processes and identify the bottlenecks in your billing system. Are you the one who keeps the invoices on your desk for days before you approve them to be mailed? Is it an antiquated time system that is not real-time? Is it a duplicate data entry that can be streamlined? Once you’ve determined your bottlenecks, you can take action to eliminate them. When you’ve worked with a client, most of them expect an invoice within a week. Be sure to send them quickly!
- Implement eCommerce. An online shopping cart can help clients serve themselves and cut way down on your customer service. Today’s online shopping carts can handle one-time payments, recurring payments, and variable bills. The best of them offer a portal for clients to update their own credit card expiration dates, respond to declined card messages, and basically serve themselves. It’s quite fun to come into the office each morning and find loads of cash sales already in your cart from the night before, without any help from you or your staff.
- Card on file. For long-time clients, it might make sense to set up automatic approval on a monthly basis by having their card on file. Some busy and successful clients will appreciate the time savings when using this method; and you will have more control and be able to get paid faster. You can also use a hybrid of this method – semi-automatic approval – where a simple email exchange approves the current month’s amount. If you keep the card on file, make sure that you provide adequate protection for your clients-it’s not only wise and ethical-it’s the law! Personally, I don’t keep card numbers on file-the risk to my clients and my company is one that I prefer not to sustain.
- Try one or more of these five tips to speed up your cash flow, simplify collections, and lower the amount you need to borrow from the bank to finance your business.