Seven great ways to keep your cash flowing

Some tips for business owners waiting for payment

If there is one lesson that a recession teaches even the most successful businesses, it's that their biggest threat is often not a lack of profit.  It's a lack of cash flow. Slow-paying customers are frequently the culprit. 

And slow payers are more common than you might think.  U.S. businesses report that more than 42 percent of their total invoice value remained unpaid on the due date, according to the Atradius Payment Practices Barometer released in September 2014.  In fact, those businesses must wait, on average, 20 days beyond the due date to collect a considerable amount of the money owed them. 

What is a business owner awaiting payment to do?  While no one solution works for everyone, there are proactive steps that business owners can take to keep cash flowing. 

1.  Establish credit policies.  — Business owners sometimes forget that credit is a courtesy, not a requirement of doing business. Some hurt their own cause by not establishing clear credit policies and communicating them upfront to their customers.  When you extend credit, you are, in effect, financing another party's business. To allow a slow-paying customer to abuse this courtesy can, in some cases, hurt a business worse than severing the relationship. 

2. Invoice promptly. — Some businesses deliver their products and services without delay, but then wait weeks to invoice their customers.  A company that is slow to bill sends the message that cash isn't important.  It's better to invoice immediately and send a clear message that prompt payment is expected.  

3. Get serious about recoveries. — Many businesses, particularly smaller ones, are not aggressive about collecting past-due invoices.  Many fear damaging their customer relationships, not recognizing that a poor collection system actually communicates that slow pay is acceptable.  Business owners need a system that notifies them on Day One when an invoice is past due.  That same day, the customer should receive a phone call, alerting them to their past-due status and asking when payment can be expected.  Such actions put delinquent customers on notice that they are being monitored and that prompt payment is important.

4Consider alternate payment methods. — Would you rather wait 60 days for a paper check to arrive, or receive payment immediately via a credit card?  More businesses are opting for the latter approach.  It's becoming increasingly common for companies whose employees visit customers’ homes or offices to use mobile technology to take electronic payment right at a customer's site.  This approach not only streamlines the payment process, it reduces the number of bad checks that must be collected on later.

5. Reduce your inventory.   Businesses need working capital to grow. Every dollar you invest in inventory is a dollar less that you have to spend on working capital.  That's why, unless they can afford otherwise, successful businesses push to create an on-demand delivery system, reducing the amount of inventory they carry to a bare minimum.

6.  Use technology to your advantage.  At some businesses, money is coming in; it’s just not coming in fast enough.  A business can help itself by using technology to speed the collection process.  By using lockbox services, for example, customer payments can be sent directly to your bank. That ensures funds are deposited on the same day they're received, instead of on the two- or three-day lag you might otherwise experience.  Businesses can also gain access to their funds faster by depositing checks in the bank electronically from an office computer or mobile device using remote deposit.  And if you haven’t automated your payments and receivables process, now is a good time to consider it.   You'll be able to process payments more effectively by reducing manual processing of both payable and receivables.  Ask your banker or accountant about solutions to automate.

7.  Delay disbursements. — Are your vendors pushing for quicker payments, too?  If so, you might satisfy their needs, while also holding onto your cash longer by using new accounts payable solutions.  Some banks offer commercial card products, for example, that make it possible for you to pay invoices with a credit card, so vendors receive funds promptly.  But the funds don't leave your account for as many as 30 days.  Many of these programs also offer revenue-sharing programs, turning your accounts payable into a profit center.

The bottom line?  While competition for customers is tough, watching a profitable, but cash-starved, business fail is even tougher.  There's nothing wrong with asking to be paid for products or services you have delivered in a timely manner.  Your success depends on it.

(Editor's note: This sponsored content was provided by Commerce Bank.)

Categories: Finance, Sponsored Content