A healthy cashflow means that a business has sufficient cash to pay its bills, you can reinvest in your business and you can create a financial buffer for any future financial challenges.
One of the main challenges of keeping a healthy cashflow however, is late payment of invoices by your clients. While this can happen due to a variety of reasons, there are measures you can put in place to help ensure faster payment.
1. Be Specific on the Due Date
The commonly used term is net 10, net 20 or net 30 as the business may deem fit. This clearly tells the customer that payment is due 10, 20 or 30 days after the delivery of goods or after services have been offered. This sends a stronger message to the customer as compared “due upon receipt” which is likely to make customer procrastinate payment.
2. Charge Interest on Delayed Payment
Late payment causes serious cash flow constraints to the business. To discourage this, start charging a given interest for all late payments. This can be charged as lateness fee and should be directly proportional to the period of the delay such that the longer the delay, the higher the fee.
3. Provide Incentives
Customers need to be motivated to settle their dues on time. So try offering a discount to customers who pay early. Since customers also want to save some cash, they will do all they can to get that discount.
4. Encourage Customers to Pay Using Cards
Most accounting systems like QuickBooks or Sage allow the clients to pay by paypal and debit or credit cards. The advantage of accepting these types of payments is that you will not have to make deposits or wait for them to cash. The money is instantly yours.
You no longer need to track your expenses in Excel spreadsheets or with calculators and pencils. Accounting software such as QuickBooks, Sage, SlickPie etc allow you to track all expenses, deductions, payroll and taxes. This ensures accuracy, speed and professional looking reports produced by the system. Most accounting software also provide mobile apps to help you manage your accounts on the go.
Study Your Cashflows
Studying your cashflow is fundamental to your business. It will help you understand the cycle of your business allow you to make better decisions.
Studying your cash flow is fundamental to the success of your business. It’s simply not possible to get from point A to point C without going through point B first, so there is no way around it and the key is always keeping a healthy cash flow. For that, you have to know you cash inflow and outflow balance to see how long you’ll be able to sustain your business, as well as control your cash and the liquidity of your assets to assure your business will get to the point of collecting its rewards.”
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