If you're about to start a new business or have started up but are still finding your way, here's a statistic that might make your eyes water. Around 20% of new enterprises fail in the first two years after opening, while 45% close during the first five years. It gets worse: Only 25% of businesses last for 15 years or more. One of the biggest reasons behind all these failures? Problems with cash flow.
Businesses often have a tough time collecting invoices from slow-paying customers, impacting their bottom line. However, it's not all doom and gloom.
1. Cash Flow Is King
Cash flow, which is money coming in and going out, is the lifeblood of your business. If you don't have enough money coming in, you won't be able to pay for inventory, staff, and general business expenses. So, you need to know where every single dime you make comes from and when it coming in.
There are lots of useful apps that can help you manage cash flow in your business. Then, when your venture grows, you might want to invest in an accountant to help you monitor your finances. If you don’t get paid on the spot, be sure to watch all money owed to you. Send out invoices for payments quickly and stay on top of collections. Again, various apps can help you send and receive invoices.
2. Consider Invoice Factoring if Customers Don't Pay You on Time
You might have slow-paying customers. While this is normal, it can have a detrimental impact on your enterprise and leave you struggling to manage cash flow. Using a factoring company is one way to solve this problem.
What is a factoring company? It's an organization that purchases outstanding invoices from your business and provides you with immediate access to cash after issuing a bill. That means you don't have to wait weeks (or months) to receive your money. The factoring company then collects outstanding amounts from customers so you don't have to chase people and waste more of your time.
Factoring companies will charge you a fee for their services. These can range from 1 to 5% of the invoice amount. However, having immediate access to cash flow after sending an invoice might provide you with the financial security you need. Over time, you'll be in a better position to manage cash flow even if some customers don't pay on time.
Factoring isn’t a loan to you and the credit rating of a business or owner isn’t part of the transaction. Factoring just involves another company purchasing your assets so you can free up cash quickly. You won't incur debts or impact your credit score.
3. Track Slow-Paying Customers to Avoid Future Cash Flow Issues
Unfortunately, the phenomenon of slow-paying customers is a reality for any business, even Fortune 500 companies. While new ventures and small businesses will feel the impact of outstanding invoices more than larger corporations, all organizations will have customers who settle their bills slower than others.
One of the best ways to track when (and how) customers pay you is to use a customer relationship system or CRM. It's a type of software that monitors customers as they move through your sales funnels. You can keep customer contact information (names, addresses, email addresses, etc.) in one location and use your CRM to plan marketing campaigns and customer outreach programs. You can also add notes to individual customer files that help you deal with the problem of late invoices. Say a customer pays for an invoice 30 days after you sent it. You can add an entry on that customer's file in your CRM about the late payment. If the customer continues to pay invoices late, you might not want to do business with that customer again.
You can choose any CRM you like for your business. Some of the most popular ones include Salesforce, HubSpot, and Zoho. However, if you already have some kind of database or record-keeping system, you need to migrate all your data to your CRM.
New business owners rarely think about cash flow management and what happens if customers start paying invoices late. That's why it's important to prepare for the future. If you are about to begin a new business venture or haven’t become well established, use apps or hire an accountant to help you manage cash flow and ensure you have enough funds coming into your organization. Then, consider using a factoring company that can free up cash when customers pay late. Finally, track late-paying customers in a CRM system for greater visibility into your business finances.