So what is cash flow? Cash flow refers to monies flowing in and out of your business. There are various ways you can increase flow. You can boost your sales of goods and services, sell one of your assets, increase your prices, reduce costs, receive payments quicker, take more time paying debts, take out a loan or increase your business equity.
The whole aim of optimizing your cash flow is to ensure that your business not only remains profitable, but also that you receive a much better return for your investment. However, it can be uncomfortably easy to run into cash flow problems. Put simply, this means a business spending more than it is earning, and no company can continue in that unfortunate situation for very long. Companies can even be in profit but still suffer cash flow problems. This can be because of the time lag between a particular product being shipped out and payment being made by the customer or client. Obviously if this situation continues, the companies affected will eventually be running at a loss. So how can you, as a business owner looking for a handsome return on your investment, avoid such an unfortunate scenario?
One way to ensure a positive cash flow and ensure profitability is to optimize your billing procedures. This can be achieved through a series of simple steps. The first is to make your customers aware of your billing terms. Not only will this let them know when you expect to be paid, but it will also help establish good customer relations. When billing clients on net 30, 60, or 90 plans, you can also factor your invoices, which will allow you to get an advance on your clients’ payments.
It is important that you get to know your clients, whether or not they are likely to be good payers. Once that is established, work out how you will bill the clients and the length of time you will give them before payment is made.
You should also develop a billing schedule. By setting a date for sending out invoices each month, this means there is less chance of you accidentally overlooking one. By the same token, your customers will know when they can expect to be billed. It is also important that all your invoices have all products and services listed and the amount charged clearly outlined.
It is also a good idea to send out a reminder to the client a week ahead of the deadline. This could make all the difference between you being paid on time or the client holding back on payment and potentially harming your cash flow. You should also keep a record of all invoices sent, as the paper trail will help you when pursuing late payments.
Obviously improving your billing system is not only way of optimizing your cash flow for a more efficient business, but it is an important one. There is a golden rule for CEO’s – “Plan for the planned” and it is a rule that you should apply to your own business. One of the unplanned events can be a downturn in your cash flow. That is why it should be optimized without delay if you are to receive the best possible return for your investment.