Running a small business comes with a number of challenges but maintaining a positive cash flow is definitely up there as one of your main priorities, but many business owners are fearful of upsetting their customers and even losing their patronage if they chase too hard for payment.
You need your clients to pay on time if your business is going to grow or even survive, so it is important to find an approach that is firm but fair, allowing you to get paid on time without worrying unnecessarily about upsetting your customers.
Here is a look at how to approach this sensitive but essential subject and develop a strategy that allows you to keep your cash flow positive and your customers on your side.
Keep your eye on the ball
It is easy to concentrate the majority of your time and effort on growing the business and generating a steady stream of new customers but you will definitely need to keep an eye on how much cash is flowing into and out of the business if you don’t want to run the risk of running aground through lack of money.
You need a steady flow of revenue to be able to pay employees, suppliers and fund any capital expenditure of expansion plans you have in mind and if you have a number of customers who are consistently late in paying your bills, that is going to have a knock-on effect with your own ability to pay for things.
You do what you can to protect your business such as using someone like Next Insurance to ensure you have adequate coverage for unforeseen issues that could affect your ability to trade, so it makes sense to take the same approach to doing what you can to protect your cash flow.
Measures of control
There are several key factors that all combine to help you create and maintain a solid cash flow situation for your business and the aim should be to focus on getting these various elements under control so that you can focus on growing the business.
A good starting point would be to identify the specific risks to your business and work on a plan to prepare for these problems.
It often helps to run through a number of what-if scenarios as a way of testing the durability of your budgeting and cash flow process. For instance, if you had a large order come in how would you cope with the increased demand in costs so that you can satisfy the customer without blowing a large hole in your cash flow.
Getting a large order might be viewed as a nice problem to fix, but finding out that one of your customers has gone bust is at the other end of the spectrum, although it is another what-if situation that you need to have a contingency plan in place for.
Both of these situations are clear examples of why you need to keep on top of your finances so that you are in a better position to deal with any potential threat to the viability of your business.
Be efficient with your billing
Before looking at the issue of getting paid on time it is worth remembering that a good boost to your cash flow efforts would be to make sure that you are efficient with your billing system and invoice customers as soon as possible.
Some business owners even leave their billing process until the end of the month, but that is delaying the time it is going to take for you to get paid.
Send an invoice as soon as you deliver your product or service. The clock then starts ticking sooner on when you can get paid or when you need to chase them up for payment.
Earn a reputation
You soon get to know which suppliers chase you for payment and which ones you can leave for a couple more weeks before paying, and that will be the same for customers using your business.
A fundamental strategy in getting paid on time is to develop a reputation for being firm but fair.
This means following a system of billing early and collecting quickly. If you chase up payment as soon as the invoice is overdue and send a reminder or make a phone call, there is no reason why the customer should be upset by that, but just as importantly, they will remember that you have a policy of being proactive on collecting overdue receivables and are more likely to fall into line.
Cash flow is the lifeblood of any business so make sure you do what you can to avoid the prospect of your company becoming critically ill as a result of a shortage of cash coming in.
