Business cash flow is the life’s blood of every company. Without cash on hand, it can be difficult – if not impossible – to meet your financial obligations and keep your business afloat. With it, you can plan for the future and grow your company.
At Addition Financial, our business members often come to us to talk about ways to improve their cash flow. We’re happy to help, both through the products and services we provide and with general business advice. That’s why we’re sharing these five ways to achieve positive business cash flow and achieve the success your hard work deserves.
#1: Invoice Customers in a Timely Manner
The first thing you can do to maximize your cash flow is to set up an invoice system where invoices go out as soon as possible after you have shipped a product or delivered a service. Some companies choose to include invoices in their shipments, while others prefer to mail or e-mail them separately.
Depending on your schedule, you may choose to create invoices daily or weekly. We don’t recommend waiting more than a week to issue invoices. Keep in mind that the terms of your invoice won’t start until the date on the invoice. If you have Net 30 terms and you wait two weeks to issue an invoice, you’re giving your customer more time to pay than the terms indicate.
#2: Offer Rapid Pay Discounts
It might seem counter-intuitive to offer your customers a discount for paying quickly, but even a small discount of 1% can work wonders when it comes to maximizing your cash flow. A typical discount term might be 2%10 Net 30. What that means is that if the customer pays the invoice within 10 days, they will be eligible to take a 2% discount. If they don’t, then regular Net 30 terms will apply, and they’ll be obligated to pay the full amount of the invoice.
You may not choose to offer a rapid pay discount to every customer. However, offering it to long-term customers with large accounts can help you keep cash flowing into your company, while building goodwill and loyalty with your most important customers.
#3: Make Regular Collection Calls
One of the biggest mistakes small business owners make with cash flow is not following up on past due invoices – or alternatively, waiting until an account is seriously past due to call the customer and ask about payment.
In our experience, creating the right mindset for collections is a must. If you’ve been on the receiving end of a collection call, you know that it’s easy to feel defensive about the money you owe. A way to mitigate that feeling is to make early collection calls. If you call when the invoice is due, you can keep your tone light and friendly. Simply ask if your customer has the invoice scheduled for payment and make note of the date.
Of course, if repeated calls are unfruitful, you may need to send a written request for payment or use stronger language to get the money that’s owed to you. However, it’s a lot easier to do that when you’ve already established a pattern of following up on your invoices.
#4: Apply for a Business Line of Credit
Many financial institutions, including Addition Financial, offer Business Lines of Credit (BLOCs) to their business clients. A business line of credit typically has a significantly lower interest rate than a credit card. If you qualify for one, you can use the line of credit to make major purchases and meet the financial obligations of your business.
One of the nice things about a BLOC is that you will only pay interest on the amount of the line that you use. If you have a $50,000 line of credit and you’re only using $7,500 of it, you’ll pay interest on what you use. As soon as you pay down your balance, your interest will decrease.
#5: Take Out a Business Loan
If you’re having trouble maintaining steady cash flow for your business, then you may also want to consider taking out a business loan. At Addition Financial, we offer several types of business loans, including:
Business vehicle loans
Business equipment loans
Commercial real estate loans
Loans are typically granted as a lump sum. If you get a loan for a specific purpose, such as buying a vehicle or a piece of equipment, then we can issue payment directly to the seller on your behalf.
Maintaining positive business cash flow is a must if you want your company to thrive. The techniques and services we’ve listed here can all help you even out your cash flow, so that you always have the working capital you need.