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One of the biggest assets on your balance sheet is accounts receivable.
You’ll want to make sure you have excellent accounts receivable management systems in place to reduce cashflow constriction.
Make sure you have set clear collection terms and conditions with your customers at every point possible during the sales process.
Upfront you want them to understand when you expect to be paid and how you expect to be paid.
Check credit references for new customers.
If it’s a small transaction, you may not want to go through the process. However, if it’s a big transaction and may become a repeat customer, you want to make sure you’re checking their credit references and their ability to pay you according to your terms.
This next one is a hard one for a lot of small businesses…
Don’t be afraid to charge a late fee.
You can always credit that late feedback to them, but that’s your first chance to show them that you’re serious about getting paid according to your terms.
You can mention something like this. “Hey, that’s part of our automatic system. We do want to make sure you’re paying according to terms. We’ll credit that back to you, but we want to make sure you understand that we expect to get paid according to the terms you agreed to during our sales process.”
Make sure your customers understand you’re not their bank.
Get your invoices out fast.
Make sure your customer has an invoice in their hand that day that you’ve completed the service. Don’t allow it a day, three days a week to go by before you’re sending them an invoice for something that you’ve already delivered. Make sure they understand how much they owe you and when they owe it.
Something helpful to reinforce your payment terms might be to have little reminders go out automatically when it’s 5 or 10 days prior to the invoice due date. This will serve as a reminder to your customer.
If you’re in the business of large projects, consider having your customers finance your business.
Perhaps there’s an upfront lump sum payment, uh, 10%, 20%, 25% to cover the cost of the product or project.
You could also charge payment upfront to make sure they’re serious about working with you. And then milestones throughout the project where you expect to get paid another lump sum when it’s 25% done, 50% done, whatever the case might be.
Monitor your accounts receivable.
Someone in your business has to be responsible for monitoring the aging of your receivables so you’re reminding your customers who are past due.
The next biggest item asset on most small businesses balance sheets is inventory.
If you’re in a product driven business, you want to make sure you’re managing the turnover in your inventory. Because that’s just cash sitting on the shelves.
How many times can you turn the inventory over in a year to turn that cash you’ve already spent on that inventory?
Turn that inventory into cash so it’s flowing through your operations.
That also goes back a little bit to our gross profit analysis. Always looking at getting more quality inventory so you can turn it over quicker. Looking for vendors who will get you closer to real time purchasing so that as your minimum inventory levels in your warehouse hit, you can place an order and they get it to you quickly.
You can continue to reduce the time that inventory is sitting on your shelves, increasing turnover.
If you found this information useful and you’d like some more information on managing and improving cashflow, click here to download the full PDF guide.