When I talk to small business owners, they frequently gripe about how it's going -- especially the past couple of years. But as we talk, I often discover that business really isn't that bad.
It's cash flow that's bad. People owe them tons of money and aren't paying up, or the business is overspending for things that aren't contributing to the bottom line.
I have one friend who kept working for a client even though they weren't paying, until she racked up a $16,000 bill. She ended up having to sue to try to recover any of it.
Customers who don't pay their invoices on time are the bane of every entrepreneur's existence. But they are only one side of the equation -- on the other side is what you spend.
You can improve your cash flow with a few basic steps:
5 tips to cut expenses:
- Get organized. When companies have cash-flow problems, often it's because they're simply disorganized. The owner doesn't have a clear picture of when bills are due or what's being spent where. Once your paperwork is pulled together, you can start to improve your cash flow.
- Analyze every budget line. Could you pay less for phone service, insurance, accounting? Shop around and find less-expensive providers.
- Pay your bills on time. Disorganization can bring a raft of $39 late fees, not to mention a hike in the interest rates on your credit cards or business loans. That's just money down the drain, that adds nothing to the business, so make sure you don't get hit.
- Stock smarter. If you sell products, there may be items you are stocking that aren't moving. Drop them and try new items, or stock more of your bestsellers.
- Ask for vendor terms. If you can have more time to pay your vendors, it takes a lot of the sting out of waiting for your slow-paying customers to send checks.
5 tips to collect bills faster:
- Track due dates. Know exactly when payments are due so you can call customers immediately. An initial friendly call may be all that's needed to get the payment headed your way. The more time passes before you figure out this call needs to be made, the longer it is until you've got your money.
- Offer incentives. When you send bills, note that there's a small discount for early payment. These carrots often get the check in the mail fast.
- Revamp your credit criteria. If customers aren't paying, you are probably extending too much credit to the wrong sort of people. Get serious about checking the Dun & Bradstreet reports on prospective customers. Have a formal credit-application process -- don't just randomly OK Joe's credit because you know he's a regular customer and you like him as an individual. Find out if he's got state tax liens pending or lawsuits outstanding first.
- Make a deal. If the customer doesn't have all the money, see if you can get a partial payment with a firm commitment to send the rest of the money in 15 or 30 days. This at least rolls some money in the door right away, and preserves the relationship. The customer will likely appreciate your cutting them a break.
- Tack on a late fee. If you still don't get a response, consider sending a new bill which adds a small late charge -- say, 1.5 percent per month. I've personally had checks come lightning fast after sending a bill with a bigger figure on it. Some people think they can pay you whenever...until they realize it's going to cost them to drag their feet. Then they pay up right away.
How do you keep the cash flowing? Leave a comment and add your own tips.
Photo via stock.xchng user Leonardini
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