Cash flow problems aren’t unusual for small businesses. Even successful businesses can have cash flow issues from time to time. Here are seven ways to solve your cash flow problems.
Even though you’re making sales, there can be a considerable amount of time between when you incur expenses (i.e., buy inventory or office supplies) and the time you get paid from customers for the products or services you sell. That time lag can wreak havoc on your cash flow and your ability to pay your bills on time. Unless you provide a service that you get paid for in full ahead of time, there is no way to completely avoid a time lag between purchases and completed sales, there are ways to minimize cash flow problems. Here are seven:
1. Pay vendors with a credit card. If you pay a vendor 30 days after you make a purchase, and you have 20 days before you have to pay the credit card bill to avoid interest charges, the total time between when you made the purchase and when you actually pay for it stretches to 50 days. (That gives you more time to sell inventory or collect from your customers.)
2. If you don’t accept credit cards from customers now, consider doing so. Yes, you’ll pay a credit card processing fee on each transaction, (often 2 to 3 percent of the sale for online and mail-order sales) and possibly a per-transaction fee and a small monthly fee) but you’ll get your cash faster. And, that can let you pay your bills on time, saving you more in interest fees you’d have to pay on loans and credit cards than you’ll lose in credit card processing fees.
3. If you usually pay cash upfront for goods and services, ask your suppliers and service providers to bill you. Doing so will help even out cash flow by giving you more time to sell the merchandise or collect from your customers before paying your bills.
4. Get invoices out more quickly. The sooner you send customers invoices, the sooner you’re likely to be paid. If possible, time the receipt of your invoice to coincide with when the customer will receive shipped merchandise.
5. Send invoices in email instead of traditional mail. The invoice will arrive almost immediately, and the person you submit the invoice to can forward it on instantaneously to the accounts payables department. Result: You’re likely to get paid sooner. Plus you’ll save on postage. One caveat: check with the customer first to be sure they’ll accept an emailed invoice. You may also want to ask the customer to confirm when they get emailed invoices from you. That way you’ll know the email didn’t wind up in a junk mail folder.
6. Avoid late-paying customers. If you have customers who habitually pay late, ask for cash upfront (or for payment by credit card). For new customers with orders of a significant size, run a credit check. If the credit check shows the potential customer is a credit risk, ask for payment upfront.
7. Keep less inventory in stock. Do some items sit in stock for months? Do you ever have to throw out inventory because it becomes outdated? Analyze your inventory needs and try to order only what you’ll use up in a short time. While it may save a bit on shipping or get a discount by ordering 500 green 7/8″ widgets at one time, if you only sell 20 in a month, you’ll have cash you could be using for other things tied up in inventory that won’t sell for years.