It has been a challenging time for many people due to lockdowns being put in place but particularly for Small Business Owners as they fight to stay afloat. Now that the world is beginning to re-open, it is important that you think about how your business will be successful in the future. Debt, when leveraged correctly, is an effective tool to help you build your business. Less has been said about managing your debts—a key component of using debt effectively.
Learn how to improve your cash flows and manage your debts with these five tips.
1. Stagger Due Dates
It might be tempting to have an invoicing blitz at month end, especially if you’re running a small business. Setting aside a day or two to deal with the financials may seem like the best use of your time.
There’s an issue with this strategy, however. If you invoice everyone at the same time, your accounts will all be due on the same date. Some customers might pay you well in advance, but the majority will wait until the last minute.
You end up going three weeks without getting paid, then get all of your funds at once.
Instead, issue invoices on a rolling basis. Sending invoices twice a month or even once a week can create better cash flow for your business. As customer accounts come due at different times, you’ll have a steady inflow of cash.
“Consolidating” means paying your bills and debts with one account, such as a line of credit or credit card. At the end of the month, you pay one final bill as well as only one interest charge.
A word of warning: If your cash flows aren’t great, this can spell trouble. While it can tie you over in a pinch, ensuring your services don’t get cut off, it can create problems if you’re always adding to the debt and never paying it off. If your cash flows are relatively good, however, this strategy can make them go the extra mile.
3. Incentivize Early Payment
Now you’re staggering your due dates, so customers pay at different times. Cash is steadily flowing into your business on an almost-daily rate. Things are good, right?
What if your customers paid their bills early, instead of waiting until the last minute? While you can’t necessarily make a customer pay early, you can offer them extra incentives to do so. Think about offering a small discount if the customer pays before the due date. Many businesses offer 10 percent or less, but it’s enough to get customers to pay the bill almost as soon as they receive it.
4. Send Reminders
Another thing you can do to improve your cash flow is to send reminders to your customers. Some companies wait until the bill has become overdue, often by just a couple of days. Some companies send a reminder on the day the bill is due. Others send a reminder two weeks after the bill goes out, reminding the customer about the upcoming due date.
Customers tend to be forgetful. They’re busy people, just like you! If they don’t pay the bill right away, they may lose track of it. And since most bills have a 30-day payment period, they commonly get set aside to be paid later—and then forgotten about. A reminder combats this tendency, so you get paid sooner.
If keeping on top of all of this sounds exhausting, maybe you need a helping hand to manage your debts, cash flows, and accounts receivable.
Outsourcing might be the answer. If you’re too busy to do invoicing more often than once a month, an outsourced provider can help. Outsourcers can also organize early payment incentives and send out reminders. In short, they can help you employ all of these tips to better manage your cash flow.
There’s no need to struggle with poor cash flow. These tips don’t take much time or effort, and the improvement you’ll see is well worth it.