Trying to improve small business cash flow is probably at the top of your to-do list every day. This can seem elusive, but most businesses are able to dramatically improve cash flow by focusing on a more proactive and streamlined approach to their customer payment process.
No matter what the payment type (invoicing, credit card, cash, check…) making sure you get paid on time can be exhausting and time consuming. All too often, we see companies who unintentionally damage their own cash flow system by poorly managing their revenue cycle and by making it difficult for their customers to pay them.
Andy Warhol was on to something.
Here are the top five ways you can begin putting cash back into your company’s bank account faster and more efficiently:
1. Set up a quick, but regular invoicing schedule.
While you want to limit the amount of time between delivering your product/service and invoicing for it, you still want to perform this function at a regularly scheduled time to be as efficient as possible. How frequently can you gather all of the information that you’d need to bill your customer? Schedule a set time each day, week, or month that works best for your business’s billing cycle.
If you try to handle invoicing on an ad hoc basis, you risk making mistakes and missing important details.
2. Use An Automated Tool That Checks Expiration Dates
You may use an automated system like Recurly or Chargify to gather recurring payments. This helps automate the payment process by charging customer credit and/or debit card automatically each month. This is highly efficient and helps ensure you are getting paid on-time every month.
But, these tools are not without their own issues. If a customer credit card expires, you are often leaving cash on the table for months before even noticing the error. Then you have to reach out to the customer, get their new card information and back-charge for the missed payments.
“Between 5% and 15% of recurring credit card transactions fail.” – Recurly
When selecting your automated payment tool, look for a tool that will automatically update the expiration date without any extra work on your end. Recurly is the perfect answer for this. Recurly will regularly compare your customer’s credit card information with the account company and if changes are detected, they will automatically update it so that every transaction is submitted with the most current information making sure you get paid onetime every month.
3. Ask Customers To Pay Electronically
While they are not as common as they once were, real-time wire transfers are extremely effective. Especially if your small business is buying or selling overseas, real-time wires may be a better option in lieu of visiting a bank branch. You can even utilize ACH payments which makes it extremely convenient and efficient to transfer money without even leaving their desk.
Bottom line – avoid the hassle of receiving and depositing payments manually by having your customer pay via wire or electronic funds transfer.
4. Send Automated Reminders
Remember, your customers are just as busy as you are. They may require a friendly reminder about overdue bills. Nearly all accounting systems have the ability to generate statements listing all unpaid invoices and most of those systems also have the ability to deliver the reminders electronically.
Set reminder statements to auto-generate and email monthly or at predefined intervals.
5. Have An Escalation Process
It does occasionally happen that a customer does drag their feet on paying your invoices. What then? Do you have reports that notify you? Do you, or other members of your team, have a standard mechanism to reach out and determine what’s preventing the remittance?
One of the biggest mistakes that companies can make when performing collections is by waiting too long to communicate and then doing so in an overly aggressive manner. Start early by being friendly, helpful, and seeking to understand (honestly) why the customer is slow to pay. Then you can ratchet up your communications tone if you recognize that someone is trying to stiff you.
If this is not something you want to do, then seek out a bookkeeping service that can escalate on your behalf. That is where AcuityComplete can make a massive impact to your cash flow. We know it can be awkward to demand payment from customers. So we not only manage bookkeeping, but also reach out directly to ensure accounts are paid in full and on time.
With all of this said:
The key to improved cash flow is having a clear process that identifies collections issues early.
If your business does not have these five processes in place, you’re probably adding at least a week to your collection cycle. Unless you started your business to become a bank or lender, you should not be playing this role for your customers.
What other strategies have you used to expedite cash into your company bank accounts?