When it comes to business finances, cash flow is arguably the most important. Even if you have been promised lots of credit from venture capitalists, and even if you expect that you will break even by the end of the year, not having adequate cash flow in the interim can spell disaster for your fledgling business.
The problem that many small businesses have is that they tend to focus on the fun parts of their operation. They invest their time in their product line – as they should – and they do everything they can to pursue their own talents and passions – after all, this is why people go into business in the first place. They keep their eye on the prize, constantly looking for ways to boost their sales and grow their customer base.
But all that fun stuff has to be coupled with all the routine stuff to be successful. Yes, it is great to have a sprawling customer base, but if those clients aren’t being billed on time, then your business won’t collect the money it needs to continue.
Some customers can be tough to negotiate with, and many entrepreneurs will save in order to retain their business. But remember, it is the job of clients to utilize your services for the lowest cost possible. After all, they need to get the best value for their stakeholders. The problem for many small businesses, especially those run by students, is that they are too willing to discount their goods and services. This can quickly put them into a cash flow problem.
There are other issues too. Some clients won’t pay until 30, 60, or even 120 days after you have rendered services to them. This can take an enormous toll on business owners. Their accounts receivable continue to mount up, but no money actually gets paid into their bank accounts. This is a problem since staff still have to be paid, rents are still due, and your inventory needs to be replaced. Sure, you might be owed lots of money, but if you can’t make payments on those items, you will go out of business.
Here are some things that can help you improve cash flow:
Get Accounts Receivable Financing
If you have a cash flow problem, you can potentially get out of it through what is known as accounts receivable financing. This works by using your accounts receivable as a sort of collateral for acquiring more liquidity in the short term.
The next thing to do is to make sure that you are actually billing your clients. Every invoice that you sent out should have official terms and conditions attached, including any penalties for late payment.
Keep Track Of What You’re Owed
Students also need to keep track of their accounts receivable. If you see your accounts receivable building up too much, then the time has come for you to contact your clients and ask them directly for payment. Make sure that you call every client who owes you money before it is too late.