When bigger businesses experience cash flow problems, they have a bunch of different solutions available at their disposal. When a smaller business like yours suffers through a cash flow problem, there’s rarely any such luxury. This just means you have to get creative with how you approach the challenge of freeing up money.
How to Enhance Cash Flow One Step at a Time
Cash flow issues are highly problematic for small businesses. Too much strain over a period of time can lead to shutdowns, layoffs, and unbearable stress if not dealt with in a timely manner.
The biggest issue small businesses have is not being proactive enough with how they handle cash flow. They wait until a problem arises and then respond, which wastes unnecessary resources and leads to greater challenges down the road.
If you want to keep your business operating smoothly and profitably, you’ll need to pay attention to how you’re handling cash flow. The following tips are practical and effective:
- Automate Invoicing
If you aren’t already, the first thing you need to do is automate invoicing. Manually collecting invoices might be fine when you have just a handful of clients, but it’s impractical when you have dozens or hundreds of clients who are all on different billing cycles.
Thankfully, there’s AP automation software that makes the process of automating invoices a breeze. With the right system, you can get your invoice process to perfectly mirror workflows, which maximizes efficiency and speeds up your ability to collect payments.
- Diversify Revenue Model
One problem businesses (small and large) often encounter is a lack of diversity in their revenue models. In other words, they only have one method of generating revenue. What further compounds this issue is that the revenue is all collected on the same schedule.
In order to ensure your business is maximizing revenue and enjoying a steady infusion of cash throughout each pay cycle, you need to diversify your revenue model. Selling ancillary services and complementary products is one way to accomplish this.
- Reward Quicker Payments
Late payments are extremely frustrating, yet quite common. By getting customers to pay on time with more consistency, you can eliminate a huge stressor and enjoy a much more predictable stream of revenue.
One of the best strategies for encouraging on-time payments is to reward customers for their commitment. There are a variety of early payment incentives, but one of the most common is something known as 2/10 net 30. When you include this on your invoice, it indicates to customers that payment is due within 30 days. However, if the customer pays within 10 days, there will be a 2 percent discount.
- Eliminate Unnecessary Expenses
It’s easy to blame late paying customers for your cash flow shortcomings, when the truth is that many small businesses are simply poor stewards of their financial resources.
The beginning of the year – or any fiscal quarter – is a great time to reevaluate your financial standing and eliminate unnecessary expenses that are draining your cash reserves and making it difficult to function. If you truly take the time to dig around and examine your budget, you’ll find a lot of fat that can be trimmed with relative ease.
Keep Your Business Moving in the Right Direction
When revenue is greater than expenses, your business should be profitable and growing. Unfortunately, many profitable businesses barely scrape by because of issues managing cash flow. If you want to keep your business running smoothly, you need to master this aspect of management.