According to Intuit’s The State of Small Business Cash Flow, “69% of small business owners say they have been kept up at night by ongoing concerns about their cash flow status.” Nearly one-third (32%) can’t pay vendors, pending loans, employees, or themselves because of cash flow issues. Even worse, “[o]n average, U.S. small business owners are losing $43,394 annually by foregoing a project or sales due to issues created by insufficient cash flow.”
Know your numbers
Cash flow essentially means money in and money out. Having enough coming in to pay what’s going out is key. And the only way to be sure is to stay on top of your numbers. This means monitoring your cash flow on a regular basis. This can be done using your accounting solution or add-ons to them. Some offer push notifications on your mobile device when payments are coming up and/or cash flow is low.
Change your billing policies
One of the findings from the Intuit survey was that “more than half of small businesses globally (53%) bill customers for goods/services on a specific date, compared to 47% that utilize advanced payment – charging customers for goods/services before or at the time of receiving them.” With today’s payment options, there’s no reason for most small businesses to delay billing. Generating a bill or invoice and receiving payment instantly. It can be done with QuickBooks and most other small business accounting solutions, with Square and other devices facilitating mobile payments on the spot.
If you must send an invoice and wait for payment, don’t wait too long before you begin collection activities. It’s been my view that invoices aren’t like fine wine; they don’t get better with age. What to do:
- Set your in-house policy on what constitutes “past due.” For example, if your invoices say “net 10 days,” you may decide that one week after this means the invoice is past due.
- Become proactive. Follow up immediately with any past due invoices. This can range from sending a second invoice as a gentle reminder or a phone call asking what’s going on. Depending on the amount that’s owed or the principle involved, you may even want to go to small claims court to collect what you’re owed without having to incur legal fees and other large costs.
- Turn things over to the pros. If you’ve exhausted your own collections efforts, consider bringing in professionals. Again, depending on the amount outstanding, you may want an attorney to work on your behalf. Or you may want to use a collections agency. Recognize that once you use outside help, it’s going to cost you and you never get full payment (even if full payment is collected by your pro).
Build a cash cushion
Companies may be doing a box-office business and have lots of receivables on hand, but that doesn’t help cash flow. According to the Intuit study referenced earlier, “nearly a third of small businesses (31%) estimate it takes more than 30 days to get paid, by customers, clients, vendors or banks.” What’s needed here (in addition to following the ideas discussed earlier) is to have sufficient cash on hand to pay bills while waiting to get paid from tardy customers. Some ideas:
- Create a savings account for this purpose. This can be very challenging for small businesses on tight margins.
- Obtain a line of credit. If your business is financially sound now, you can set up a line a credit with a bank, credit union, or online lender. This can then be tapped as needed to cover expenses while waiting to get paid.
- Cash advance. Get cash now at a discount to the face amount of your receivables. Another option is getting a cash advance from FINSYNC based on your invoices.
It’s been reported that 82% of small business failures are the result of cash flow problems. Don’t become a sad statistic.