Small businesses are always trying to make more money and spend less money, but small business financial management is much more complicated than simply making more sales or cutting expenses. There are a variety of ways that small business owners can change the way they manage their money and boost their cash flow – by getting paid faster, using automated tools, and accessing working capital – to improve their bottom line.
Here are a few simple ways that any small business owner can improve their cash flow with better financial management:
Send Invoices Sooner
You can’t get paid until you send the invoice – so why delay? Many small business owners can improve their cash flow just by being more prompt and methodical and sending their invoices as soon as a product is delivered or a project is complete. Make sure you’re not missing out on payments by accidentally neglecting to send invoices. Create a consistent process to send invoices – whether it means including them along with the final delivery of a project or product, or setting up reminders on your calendar, or otherwise making it more “automatic.” The sooner you send the invoice, the sooner you will get paid.
Change Your Payment Terms
Many small business owners feel like they have to settle for slow-paying clients – with 60-day payment terms (or more)! But the truth is, in business as in life, you get what you negotiate. Don’t be afraid to ask your clients for better payment terms. For example, you could change your invoices to say “Payment due upon receipt” (instead of assuming that the client will pay within 30 or 60 days of receiving your invoice). Or you could ask for partial payments upfront, or ask your clients if they would like a 5 or 10% discount in exchange for immediate payment. Your customers will often be happy to work with you to pay more quickly, especially if you can offer to give them something in exchange – whether it’s a small price discount or better service or faster delivery.
Get a Revolving Line of Credit
Many small business owners need ongoing access to working capital to help pay bills, make up for cash flow shortfalls, and otherwise deal with the operational costs of running a business. One aspect of your financial management strategy should include having access to a revolving line of credit – whether it’s from your bank or from an online lender. A revolving line of credit is an important financial management tool because it gives you access to a flexible source of cash where you can borrow as little or as much as you need (within a certain credit limit) and then repay the money over time. Instead of having to apply for a new loan every time you need cash, a revolving line of credit works like a credit card – the money is there in case you need to borrow, but you don’t have to repay fixed loan installments each month (as long as you meet your minimum repayment amounts).
Use Automated Tools
There are many excellent online tools for small business accounting, invoicing and financial management. The rise of cloud-based business software has made it possible for small businesses to get access to powerful business tools and capabilities that were once available only to big companies. Look into some options for online tools such as Xero, Freshbooks and others, that can help you send invoices, track payments, manage cash flow and predict your sales forecasts. These tools can take the guesswork out of your financial management by giving you a clear view of outstanding payments, and make it easier for you to send invoices promptly as well as manage the daily details of getting paid. For example, many of these online tools can send automatic reminders to your customers to pay their bills – this can help you save lots of time on making follow-up phone calls or sending emails.
It’s always important for businesses to boost their sales, but more sales don’t matter until the money is actually in your bank account. Getting paid doesn’t have to be a chore. Ideally, your customers will be happy to pay you more promptly if you can offer some special treatment in exchange for faster cash. If you look at the total picture of your business’s financial management, there are several simple steps, including the ones mentioned above, that you can take to improve your cash flow with faster payments and smarter access to credit.