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Keeping Tabs

Steps to take to improve your cash flow.

Business is booming, but you wouldn't know it from your bank account. Clients and customers who take 60 days or more to pay up are killing your cash flow. The solution? When payment times start to creep up, take proactive measures, says Bette Price, founder and president of the Dallas-based management consulting firm The Price Group.

"The most important thing you can do is establish your terms upfront," she asserts. "Negotiate a pay period that works for you and build it into your agreement or contract."

Typical payment terms vary by business type. For service businesses, it's acceptable to request a percentage of the project fee in advance, while businesses selling a product can opt to ensure prompt payment by shipping the merchandise c.o.d. "When you'll be working on a project over a period of time, it's viable to request periodic payments, such as one-third upfront, another third midway through and the remainder on completion," explains Price.

Adding a financial incentive in the form of a late fee or an early-payment reward can also speed receipts. "Offering a 10 percent discount for payment within 30 days can be effective," says Price. "Or, if it is legal in your state, your invoice terms can call for an interest charge on any fee not settled within 30 days."

A proactive stance also helps. Sending past-due notes and following up with a call when bills go unpaid tends to spur payment--even without the threat of a late fee or collection action. "It's about pride," says Price. "People see that second invoice stamped 'Past Due' and they get out the checkbook."

Jennifer Pellet is a freelance writer specializing in business and finance.

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This article was originally published in the January 2007 print edition of Entrepreneur with the headline: Keeping Tabs.

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