Okay, so “easy” is the operative word here. And even if it may be easy to increase cash flow, it might not be quick.
You can’t expect a problem that was months in the making to be resolved overnight. Improving cash flow is a lot like trying to lose weight — it can take a bit of time. Consistent action will improve the situation and pay off for your business in the long run.
Here are three ideas for improving your cash flow depending on whether you sell products or services. There’s a little bit for everyone. 🙂
If you get paid as soon as you sell something, this tip won’t help you much.
But for the thousands of you who sell on credit (yes, credit) by performing a service, invoicing and then getting paid some time after the work is complete, this tip will help increase cash flow a bunch.
Most small business owners set due dates as “Net 30.” Who invented that rule?I’m here to tell you that you can make your invoice due date anything you want. Click To Tweet
And for the health of your business, make it short! How does “Due on Receipt” or “Net 5” sound to you? From a cash flow perspective, it probably sounds pretty good.
Start by notifying your current clients that the due date for payment has changed.
It’s that easy. No need for apologies.
Just let your customers know that your credit policies have changed effective a certain date. Then with every new agreement you sign, make a short receivables cycle part of the contract.
Bonus tip: If you just can’t bring yourself to shorten the payment cycle to less than 30 days, offer an incentive for customers who pay early. Allow them to reduce the amount due by a specific percentage (e.g., 1%) if they pay the bill within 15 days. Or offer them the option to pay by credit card immediately to get a two percent discount. Consider different options that will work both for your customers and your business.
2. Set up a continuity program
A continuity program is way to bring a fixed amount of cash into your business week after week, month after month. Think “wine of the month” or “fruit of the month” club. Those have been around for years. You might have hear these called “membership sites” in the online world.What's really cool is that a continuity program works for both offline and online businesses. Click To Tweet
Their popularity is due to more small businesses finally realizing how important it is to have steady cash flow — so the idea has slowly spread across different niches.
Now before you dismiss this idea as not applicable for your business, sit down and do a bit of brainstorming on how it might work. Here are some ideas that may get your creative juices flowing.
One critical component to your continuity program is the ability to accept credit cards so you can automatically charge the customer based on your agreement with them. That way you can increase cash flow and have it provide steady, consistent revenue.
Bonus Tip: The objective is to set the price and automatically charge the customer each month (or week depending on your program) until they cancel the option. You’ll clearly communicate this in your agreements with customers and you’ll need to set up a back end billing process to handle the billing.
If you don’t sell hard goods (we’ll call them “things”), this tip won’t help you much.
But for the thousands of you who do sell things that must be kept on hand, this tip will help you increase cash flow a bunch.
When you sell things for a living, you must keep a certain amount of items on hand so you have them when your customers decide to buy. But having inventory of your things costs you money and most certainly doesn’t produce any cash flow. On top of that, you must have a place to keep all those things so there are storage costs involved too.
It’s important that you know exactly the right amount of things to keep on hand so you don’t cripple your cash flow. Here’s what you need to do.
Bonus Tip: Take a look at using a drop shipper for delivering your products. You could set up an account with another business that will be responsible for inventory. When your customer orders that thing from you, you contact the drop shipper and it’s sent off to your customer. This saves you inventory and storage costs so you can put that extra cash to work in your business.
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