If there is one golden rule when it comes to running any business successfully, it is this: control your cash flow. While you do not want to end up with a large amount of capital that sits in the bank instead of working for your business, you also need to remember that a lack of cash has led to the closure of many a business. You need to find the balance, and ensure that your customers pay on time. Debtors is only an asset on paper – in the real world, cash flow is king.
In Part 2 of our article on tips to keep your cash flow positive, we list eight more ways to keep your bank account in the green.
- Down payments
Where possible, require customers to pay a deposit or a down payment – this will cover some or all of your base costs and will motivate them to pay as they might lose money and service delivery if they don’t.
- Incentivise early payment
Offer customers a small discount if they pay within a certain (short) period, or offer value-adds like free delivery. Not only does this motivate early payment, it also grows loyalty. In addition, charge interest rates to discourage late payments.
- Pick the right preferred method of payment
You want your money in your account as soon as possible, so negotiate with customers to pay via methods that ensure this. While it’s unavoidable that people will want and need to use credit cards, this means that money isn’t immediately available in your account. Look at options such as EFTs.
- Have a collection process in place, and follow through with it
You know that cash that you really need ASAP while you are waiting to be paid – well, that customer is effectively using your cash to drive his business. With an effective and quick collection process in place, that cash will be in your bank account, waiting for you to use it. Remember to be consistent in your collection process – if customers know you will collect, they are likely make a plan to have the money and perhaps even have their own back-up plans in place.
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- Practise what you preach
If you expect your customers to pay on time, be sure to follow the same principle with your suppliers. This way you build a good, trustworthy relationship with them and, should you ever be in a situation where you have to pay late, they will see you as trustworthy and may be more accommodating.
- Negotiate good terms with suppliers
Build in a buffer between the date of payment by customers and debtors and the date of payment of the payments you need to make. If you can negotiate a 30-day window, it might make a world of difference when you get paid late.
- Make sure you use the right terms
Very often, the wording on your invoice can make a difference in when you get paid. Avoid vague terms such as “payment upon receipt” and be direct – “payment must be made within 21 days of delivery”. This way, your customers know exactly where they stand with you and what the terms for payment are.
- Limit your capital withdrawals
Every time you draw money from your owner’s capital, you decrease the amount of money available for expenses. Drawing on this capital is inevitable, but limit it as much as you can and try to repay this as soon as you can.
Remember, your cash flow is not the same as your profits. You can have a profitable business, but a negative cash flow. And this negative cash flow can sink your business. Contact Resolve Immix today to get a tailored MS Dynamics GP business solution that’ll give you peace of mind about cash flow, sales and marketing, HR management and all the other functions that keeps your business going.