Source: Reshot
Money makes the business world go ‘round. You might be driven by different incentives, your employees might have a passion for making a difference in the world, but at the end of the day, all of it will boil down to your ability to pay your suppliers and your overheads while preserving your operating capital. Also known as cash flow, operating capital is the money you work with on a daily basis – the foundation of your company’s liquidity and the only thing keeping you from going under.
With that in mind, it only stands to reason that you should do whatever it takes to ensure steady cash flow throughout the year in order to pave the road to solvency, drive innovation, and solidify your position in the competitive business world. Here’s what you can do.
Tend to strict invoice management
Invoice management is so much more complex than many novice entrepreneurs like to think. It goes far beyond simply sending out automated invoices every month and it includes using invoice reminders, compelling incentives, executing late-payment penalties, and utilizing invoice factoring (more on that in a minute) to preserve a positive cash flow. As you can tell, there’s more to invoices that meets the eye.
You can start by developing a smart invoice strategy. First, do remember to invoice your clients promptly. Follow up your invoice with a confirmation that the client actually received the bill. Once that doesn’t work, because clients will do whatever it takes to stretch out the payment period, you can move on to the incentives.
Consider giving your clients a reason to pay you early or in a specified timeframe by offering a reward such as an early-payment discount. If that doesn’t work, you can always stop working until you get paid, or penalize your clients – but be careful as this method can hurt your relationship with your clientele.
Minimize unnecessary expenditure
Before you can expand your services and even start thinking about improving your revenue streams, you should first aim to minimize all extraneous expenses that are putting a dent in your operating budget on a daily basis. These include but are not limited to payroll expenses, office rent, office equipment, business expenses such as travel and commuting, utilities such as electricity, gas, water, phone and internet service, and insurance.
This doesn’t mean that you should stop paying for these services, it just means that you should find ways to minimize the amount of monetary resources you put into them on a daily basis. For instance, you can optimize payroll expenses by outsourcing menial tasks to freelancers, or replacing certain jobs with automated software and hardware.
Don’t wait for clients to pay their invoices
In an ideal world, everyone would get what they’re owed as soon as they send out an invoice, and the business world would be a happy, stress-free place for the rest of time. In the real world, though, things are different. So different, in fact, that getting customers and clients to pay on time becomes wishful thinking than a viable scenario.
As a growth-oriented company, you need a solid way to ensure constant cash flow without relying on your clients. To achieve this, every experienced business leader will leverage the potential of debtor finance in order to meet immediate cash flow needs while preserving healthy relationships with their clientele. Remember, the majority of clients will avoid payment until the very last second, but that doesn’t mean that your business needs to struggle as a result.
Increase revenue instead of cutting costs
It’s one thing to minimize expenses and cut costs wherever you can, but that’s not the same as increasing revenue. By all means, go ahead and minimize needless expenditure, but keep the bigger picture in mind. Revenue improvement should be your primary goal for the long term, so once you have stabilized your cash flow, go ahead and devise new ways to make it happen.
Consider boosting your marketing program to attract new customers and improve conversions. You can also attract new business and create audience engagement by adding services and products to your website. And finally, consider whether or not your prices are balanced between competitiveness and fair labor compensation. Many companies will undersell their products and services in order to attract business, but in doing so will inadvertently cut their revenue potential in the long run.
Offer a number of payment methods
Lastly, every 21st-century business has a duty towards their customers and clients to offer a number of payment methods to suit individual preferences – and thus minimize late payments while building authority and trust in the industry.
Consider introducing everything from mobile payments, to credit and debit cards, bills, and payment platforms to your strategy in order to give your clients the freedom to pay the invoice on their own terms. It will go a long way towards getting paid within the specified timeframe.
Cash flow is the lifeblood of every modern business. Upon it rests the future of your brand in the competitive market, and your ability to manage growth for a future of success and solvency. Follow these tips, and ensure rock-solid cash flow for years to come.