One of the top priorities of any company is to improve cash flow. Having cash available for routine payables, growth opportunities, or unforeseen issues is a good business practice. Improving cash flow can be an ongoing challenge for businesses. Here are some common ways successful companies improve cash flow.
Know your customers is a saying that means different things to people. For some, it means knowing their tastes or preferences of products. For others, it means knowing the customers needs and understanding their business. When it comes to improving cash flow, know your customer means knowing about their ability to pay for the work or products your company provides.
Startups and growing companies need customers. The desire to build a business often outweighs the risks involved with new customers. It’s essential to research and ask for references when it comes to doing business with an organization you are unfamiliar with.
Online reviews are a source of information on a company. Although they can be expensive, purchasing a subscription to a credit bureau can be a money saver in the long term. In the end, you have to get paid for the work your company performs. Make sure your customers have the ability and history of paying others in your industry.
The next step to improving cash flow is to enhance your company’s invoicing process. Many small business owners either handle this duty themselves or if they are too busy, pass it off to someone else in the office. Invoicing is crucial to cash flow and should be a priority for every business.
Large organizations have entire departments called accounts receivables, in which trained and experienced staff make sure all work is billed and invoices are created, reviewed, and submitted for payment. Small business owners don’t have the luxury of large departments, so it’s essential to do things right.
In any industry, there are standards to follow when it comes to invoicing customers. Generally, customers will require a reference number, job order, or purchase order number on the invoice. These numbers allow the payables department to reference the work internally and enables them to route and process the invoice faster.
Another step for better invoicing is to include any supporting documents related to the work performed. These include work orders, bills of lading, tickets, or timesheets. Whatever service you are charging your customer for, should have documentation and sign-offs that show a customer representative has accepted or approved the work.
Any company that wants to improve cash flow must have a dedication to managing their accounts receivables. If your organization has vetted your customers and invoiced your work correctly, you have done the big steps to getting paid on your receivables, within terms.
Despite the best efforts, there will be invoices that go overdue and need to be addressed. The best way is a straightforward process. Call the customer and speak to the accounts payables department. Find out if there is anything preventing payment of the invoice. Ask for a specific date the check will be mailed, and confirm it is going to the right address. Document your conversation and if the check doesn’t show when promised, then call again and speak to a higher authority.
In the end, working with customers that do not pay on time puts your business at risk. If you need to spend your time getting customers to pay, that is time away from the task of growing your company. If you are going to improve cash flow, work with customers who are good business partners.
Companies that vet their customers have solid invoicing practices and manage their receivables will improve cash flow. This may be enough to enable management to operate the business without outside financing.
Some companies will take the next step; they will factor their accounts receivables. Factoring is a type of financing in which a business sells its open receivables to a factoring company in exchange for an immediate cash advance. Factoring improves cash flow by providing money each time invoices are sold to the factoring company. This consistent cash flow is used to meet payroll, pay bills, or any other expenses.
Besides the benefit of immediate cash, top factoring companies offer additional services such as credit analysis, invoicing review, and receivables management, all to help improve cash flow. With the assistance of a factoring company on these tasks, business operators can focus on improving work efficiencies, managing their staff, and growing the company.
TCI Business Capital has offered factoring services to small and mid-size companies for more than 25 years. We offer monthly factoring lines from $50k to $10 million, with no long-term contracts. For more information on using receivable factoring to improve cash flow, contact us via the web, or call (800) 707-4845.