Every smart manager recognizes the difference between making profit and collecting cash from customers. Cash flow unfortunately is different than sales and profits.
The way you manage your accounts receivables has a huge impact on your bottom line. In every business there are good paying customers and slow paying customers – the later consumes great amount of your cash and your time.
In addition good paying customers are predictable – this allows you to forecast your cash flows with certain degree of certainty which is good for your business plan, cash flow projections and budgeting.
Here are 5 ways you should pay attention to in order to improve your cash flows:
1. Electronic invoices: Don’t waste time with paperwork and mailing to your customers
Send your invoices immediately to your customers by email or use online invoice application and send the invoice URL to your customers do they can access it instantly.
This step alone will save you at least several days on physical mailing and paperwork plus depending on the volume of your business it can save you money in direct cost and overhead.
2. Electronic payments: Have your customers pay you sooner by using electronic funds transfers
Motivate your customers to use electronic payments and pay you sooner rather than later. In addition to electronic invoicing allowing customers to pay you instantly online will shorten your cash flow cycle.
3. Start smart with credit checks
Don’t save money on credit checks because this might be the most critical step in your process. Allowing credit to customers who are not able to pay you is the biggest mistake. No strategy, tool or tactic can help once mistake has been made at this stage.
Have clear and well defined process for checking the credit of potential customers and develop your credit policies and decision making checklist.
4. Know your numbers and monitor your accounts receivables
Ongoing reporting is a must in smart accounts receivables management. Tracking and monitoring the aging of your AR should be ongoing job and high priority. It is important to identify any issues on time and take actions.
For example, you should always know and continuously improve the past due accounts and the aging distribution of your accounts.
5. Encourage early payments
Every business is different and every company has unique set of accounts, customers, clients, partners… You should develop the right tactics to motivate your customers to pay you sooner. Simple but yet very effective mechanism is offering discount for early payment.
Regardless of your business type and your industry and regardless of how small or big your companies is: Cash must come in faster than it goes out.