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5 ways to avoid a cash flow problem

5 ways to avoid a cash flow problem

You need a healthy cash flow to run your business. If you’re not prepared then you may end up with a potential cash flow shortage and left with employees, suppliers and bills to pay.

Here are 5 ways to keep your cash flow in check.

1. Ask for upfront payments

This can work well for everyone (and make the accountants happy). Try it with your regular customers, ideally those who always pay ahead of time. 

The closer it gets to a public holiday, the harder it can be to collect money you’re owed. The cash from upfront payments could be just the buffer you need – it’s always good to have cash in reserve.

Tip: Consider offering your customers a discount for paying upfront. 

2. Invoice immediately

Be prompt with invoicing, clear on the payment due date and explain your payment terms. It’s also important to include the implications of paying late too.

Tip: Add a payment link in your invoice – this makes it quicker and easier for your customers to pay. And consider offering customers different ways to pay.

3. Offer a discount for early payment

Offering your customers a discount can encourage them to pay ahead of time.

Some ideas: 

  • 5% discount for paying within ten business days of invoice date
  • 5% discount for paying ten business days before payment due date
  • 5% off next time for paying within ten business days of invoice date

It’s important to do some number crunching with this though. You want an offer that helps with your cash flow, not one that cripples it further.

4. Remind then chase

Send a gentle reminder five business days before a payment’s due. It could be a time and money saving move for you and your customer. 

If the due date’s come and gone, you’ve got no choice but to chase. Call first though. It not only shows you’re serious but gives your customer the chance to explain too. Sometimes this is all it takes. 

Tip: Set up an automatic payment reminder 10 business days before every invoice is due – make sure it gets cancelled once a payment’s been made. 

5. Forecast your cash flow 

Tracking what’s happening in your business is crucial. Forecasting, including cash flow predictions, is key. 

Knowing when you’ll have a cash flow shortage well ahead gives you the chance to build up a cash reserve. And helps you consider ways to bridge this cash flow gap before it happens.  

That should leave you in a better position to pay your suppliers and have money to draw on should the unexpected happen. 

Tip: If your business is dependent on one customer paying an invoice to prop it up over the month, it may be a good idea to review this high-risk approach.

 

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. You should consider seeking independent financial advice before making any decision based on this information