While there are some businesses that operate primarily on a cash basis, most of us face a far more complex process of reaching positive cash flow and getting our hands on the money we're owed. Once we ship goods or deliver services, we wait, checking the mailbox or our bank accounts, hoping to discover that a payment has arrived.
But it doesn't have to be that way.
Cultivating clients who appreciate your services enough to pay you well and pay you on time is well worth the effort.
Taking control of your accounts receivable can be a productive way of ensuring positive cash flow in your company. Here's how to do it.
1. Extend credit carefully.
Not all clients are good credit risks, and not all clients deserve the same credit terms.
My practice is to start small when it comes to credit. If I'm working with a new client, I might require immediate payment at first. And when I do start offering the option of credit, I start with small amounts of money, due fairly quickly. (After all, there's no rule that says all payment terms have to be 30 days.)
After a client shows a history of paying on time and in full, I might extend the terms a little, say from 10 days to 20 and finally to 30.
The point is that you get to negotiate credit terms, and you don't have to offer credit at all.
Positive cash flow relies on timely payments. Make sure you're minimizing your exposure when you extend credit.
2. Prioritize quick-paying customers.
All customers aren't created equal. When I make my to-do lists, clients who pay on time consistently go higher on my list of priorities.
I'll still deliver work to slow-paying clients, and I'll still do it by the promised deadline. But if anyone's getting delivery ahead of schedule, it's those folks who pay me as soon as they see my invoice.
Positive cash flow is a top priority for me, so I take very good care of the clients who make that possible.
3. Require a deposit.
It's commonplace for businesses to require a deposit for projects that require an investment of materials.
But even if your only investment is time, that still has a monetary value. Asking for a deposit helps you keep a positive cash flow while you're hard at work.
An added bonus of requiring a deposit is that it screens and pre-qualifies customers. Clients who are willing to put down a deposit are far more serious than those who are just shopping around for the cheapest price.
4. Sell a subscription.
Want to know why there are so many subscription boxes for everything from wine to art supplies? Because it's a great way to ensure positive cash flow. When you can count on consistent monthly revenue, it can be easier to manage your expenses.
Not only do subscriptions help attract new customers to your brand, but they can be a steady sources of revenue. You spend less time going out and trying to land new clients when you have a stable of consistent monthly buyers.
5. Unload old inventory.
Inventory costs you money. But when you have old inventory that's taking up space that you could be using for stuff that actually sells, it can cost you twice as much.
Sometimes the best way to generate positive cash flow is to get rid of products that aren't earning their keep. You can offer a great discount, parcel out some items into subscriptions as a bonus or freshen up a display, but finding a way to sell off old inventory can be like finding money. You already own it. You just have to sell it!
6. Offer discounts for immediate payment.
People love to get a discount! Try knocking off a point or two for customers who pay on the spot and just see how many wallets open right up.
When you have money coming in before your bills are due, that's positive cash flow. Giving your clients motivation to pay right away helps keep that revenue coming in ahead of schedule.
Unfortunately, positive cash flow isn't something that happens magically. But it is something you can achieve with a sound strategy and some effort. Cultivating clients who appreciate your services enough to pay you well and pay you on time is well worth the effort.
Read more articles on managing money.