5 Ways to Speed Up Your Cash Flow
One of the biggest challenges for small businesses is managing cash flow. There never seems to be enough cash to meet all of the obligations, so it makes sense to speed up cash inflows when you can. Here are five tips you can use to get your cash faster or slow down the outflow.
- Stay on top of cash account balances.
If you’re collecting money in more than one bank account, be sure to move your money on a regular basis when your balances get high. One example is your PayPal account. If money is coming in faster than you’re spending it, transfer the money to your main operating account so the money is not just sitting there.
- Invoice faster or more frequently.
The best way to smooth cash flow is to make sure outflows are in sync with inflows. If you make payroll weekly but only invoice monthly, your cash flow is likely to dip more often than it rises. When possible, invoice more frequently or stagger your invoice due dates to smooth your cash balances. Or consider changing your payroll schedule to bi-weekly.
Take a look at how long it takes you to invoice for your work after it’s been completed. If it’s longer than a few days, consider changing your invoicing process by shortening the time it takes to send out invoices. Email invoices to your customers with a payment link. That way, you’ll get paid sooner.
- Collect faster.
Got clients who drag their heels when it comes to paying you? Try to get a credit card on file or an ACH authorization so you’re in control of their payment. Unless you have a compelling business reason, there is no need to extend 30 days to pay you. Change your payment terms to Net 7, 10 or 15 days.
Put a process in place the day the invoice becomes late. Perhaps the client has a question or misplaced your bill. Be aggressive about following up when the bill is past due. Turn it over to collections quickly; the older the bill is, the less likely it is to get paid.
- Pay off debt.
As your cash flow gets healthier, make a plan to pay off any business loans or credit cards that you have. The sooner you can do this, the less interest expense you’ll incur and the more profit you’ll have.
Interest expense can really add up. If you have loans at higher interest rates, you might try to get them refinanced at a lower rate, so you won’t have to pay as much interest expense.
- Reduce spending.
You don’t always have to give up things to reduce spending. Look at your expenses from last year and ask yourself:
- What did you spend that was a really great investment for your business?
- What did you spend that was a colossal mistake or waste of money?
- What do you take for granted that you can cut? What services are not being used?
- Where could you re-negotiate contracts to save a little?
- Where could you tighten up if you need to?
Managing cash flow is always a challenge, and these tips will help give you a little cushion to make it easier. If you would like us to help with specific suggestions for your business, please reach out.