In one of my consulting sessions, the business owner had to turn down a business deal due to the lack of funds to finance the project. Upon further probing, what came to light was very alarming. She had been in business for more than four decades and over these years, she developed a close bond with most of her clients. Several of her clients were four to six months past due on some very substantial invoices. She could not gather the courage to call them to collect, as she felt she would upset these long-term clients. Sounds bizarre! But this happens far too often than we business owners like to admit.  

Positive cash flow is as essential for the proper functioning of your business as oxygenated blood is for the human body. This series is titled “Your Path to Increased Profit.” Well, if you have cash-flow problems, you can’t avail yourself of the essential business opportunities to achieve profitability. Here are a few strategies for positive cash flow that will get you ahead of the game.

Develop a process to send out invoices quickly. Send out invoices promptly – daily, if possible. The sooner your clients receive the invoices, the sooner they can schedule the payment. Last year, the company that plows my driveway sent me their invoices six months late. Ouch! The reason: He was “too busy working.”

Follow up on invoices. To get your invoices paid faster, email your clients a statement for all open invoices a week before the due date. This does two things for you: First, it reminds them to include payments for your invoices in their next payment run. Second, they can ask for your invoices if they don’t have them.

Have a dedicated person to handle accounts receivable. Many business owners either avoid or don’t realize the importance of staying on top of outstanding invoices until it becomes a dire, crunch situation. Someone must be dedicated to handling it regularly – not whoever, whenever they get time. Don’t make this deadly mistake. Remember, the longer you wait to collect your outstanding invoices, the worse the odds of collecting them. What if the late-paying client experiences its own cash flow crunch, changes ownership, or goes out of business? Don’t let your customers abuse you like you’re a bank with interest-free loans.

Accept credit cards and other methods of payments. Don’t let the credit card fees on charges discourage you – they’re well worth it. It gets you paid right away, frees you up to focus on business growth, and reduces the work of your accounts receivables person.

Have a formal procedure for onboarding new customers. Don’t be eager to take on just anybody who walks through the doors or contacts you online. Have a written credit policy. Have them complete a credit application, and ask for payment up-front until the credit is approved. Check background, credit rating, references, and Dun & Bradstreet reports, no matter how well you think you have known them. I learned the hard way when I extended credit to two business owners I had met at my local networking event.

Be creative with your accounts payables. While being very strict with your receivables, creatively extend your terms on your payables. You have no choice but to pay on time for some payables like utilities, but depending on the suppliers and your relationship, you can negotiate to pay in 45 or 60 days instead of 30. That’s your best source of financing and expands your free credit. The key here is to be up-front with the suppliers. Don’t just start paying late without having open communication with them, which can result in souring your relationship.

Make the accounting department a profit center. Positive cash flow opens many doors for you. You can take on projects that you might be able to do otherwise or take advantage of early payment discounts.

Get a tight grip on your overhead costs. If you have high overhead or unnecessary costs, you have to sell just to cover such costs and break even. Watch out for recurring expenses like rent, landscaping, office vehicle payments, travel, etc.

Watch your pricing structure. Are you charging your clients enough? Adjust your pricing structure with the changing economic times to reflect any direct or indirect cost increase. You will be surprised how accepting your customers are if you are up-front and open.

Let go of unprofitable customers. With limited resources as small-business owners, we must evaluate our client base and fire slow-paying customers. They tend to take too much of our time and resources that could be invested in customers who pay on time and are a pleasure to work with.

Create estimated P & L and cash-flow statements every week. This will allow you to get a better picture of where your company stands and take steps proactively to correct any issues. Do this during good and bad economic times.