7 Tips for Increasing Cash Flow Businesses benefit from getting paid as quickly as possible, enabling more cash flow and smoother financial processes. But it can be challenging to get your customers to pay you quickly,...
This story originally appeared on Due
Businesses benefit from getting paid as quickly as possible, enabling more cash flow and smoother financial processes. But it can be challenging to get your customers to pay you quickly, especially when delaying payment is a growing trend that took root well before the pandemic.
With this in mind, what strategies can businesses use to get faster access to their money?
The Value of Faster Payments and Collections
Your business stands to benefit from faster payments and faster collections in several ways:
Immediate access to cash.
The sooner you collect money from your customers, the sooner you'll have access to it for your business. Depending on your current position, that could mean having enough free capital to pay all your debts or collecting a surplus of money you could spend on a significant investment, like a new building.
Collecting on an invoice means you can close the invoice out and complete the transaction. In addition, if you collect payments more consistently and fluidly, you'll have much more consolidated, efficient paperwork and records on the back end.
Higher organizational efficiency.
Efficient money collection can even streamline efficiency in other areas of your business. For example, project managers are incentivized to complete projects faster, accounting can make more accurate projections, and major decision-makers get more accurate data on company financials more quickly as well.
How Businesses Can Get Paid Faster
Many business owners benefit today by employing the following tactics to secure (and control) their funds faster and more reliably:
1. Consider new technologies.
Today, many new technologies and integrations make getting paid faster and easier. One taking the industry by storm is Enterprise Resource Planning (ERP) software solutions. ERP Solutions help businesses with automated and more efficient business processes.
For example, accounts payable processes link and interact with a company's ERP system to quickly process invoices and payments via a single, unified, and uninterrupted process. In addition, integrated payment processing allows customers to pay online, which streamlines the collection process, eliminates payment issues, and improves the overall experience.
On the negative side, ERP software is often very complicated and may require specialized knowledge to manage the system. Because of this, some companies may not take well to system integration and training. Fortunately, other cash-flow solutions with easier-to-manage technological capabilities are available.
For example, companies that arrange cash flow solutions from banks or alternative lenders are generally subject to traditional money transfer systems and banking hours, limiting 24/7 access to funds. eCapital, a leading capital solutions provider, has removed this barrier, providing instantaneous, round-the-clock access to funding and payment capabilities.
The company's invoice factoring clients receive funds deposited directly into their cash account — the instant invoices are submitted and approved for financing. eCapital collaborated with Visa to introduce a new commercial credit card program that connects clients to a technology hub.
This centralized platform consists of a Visa commercial credit card connected to the client's eCapital cash account. This provides clients with more control over how they receive their money and when and how they spend it. In addition, with robust reporting to manage all Visa transactions and access to a revolving line of credit to bridge gaps in day-to-day business cash flow, clients gain direct control of their funds.
2. Collect advance payments.
A more traditional way to increase the speed of your cash flow is to collect advance payments from your customers. If you're offering to finance, you could mandate a down payment – or increase the value of the down payment you're requesting. You could also collect a fixed amount of the total invoice upfront, before you begin work, such as 50 percent. This way, you'll have immediate access to a portion of your funds, and it will help you determine if a customer is a reliable payment provider before working with them.
There is a potential downside to this strategy, of course. If you initially collect advance payments too early or ask for too much money from your customers, it may make them less interested in buying from you. You can mitigate this effect by charging a reasonable advance rate – preferably in line with your competition – and providing service as quickly and efficiently as possible.
3. Accept multiple forms of payment.
Businesses sometimes avoid taking credit card payments because of high fees, or they refuse to take other types of payments to keep their payment systems simple. However, most B2B customers typically use credit cards, wire transfers, checks, payment gateways, and even cash to make payments. Eliminating any payment method could make it more difficult or inconvenient for your customers to pay you.
4. Send your invoices quickly.
It's a simple strategy but a highly effective one – make sure to send your invoices as quickly as possible, preferably the day you ship or deliver your products or services. Some customers will pay your invoice the moment they receive it. You can capitalize on this by ensuring they get the invoice in their hands as soon as possible. A quick invoice delivery also means an earlier invoice deadline, a faster follow-up process, and ultimately getting the money to you sooner than it would have arrived otherwise.
5. Clarify your invoice formatting and automate your sending.
You should also make an effort to clarify your invoice formatting and create automated sending strategies. Your invoices should be formatted as intuitively as possible to facilitate information recognition at a glance. Customers should be able to see how much they owe easily, the products and services they've ordered, and how they're supposed to pay. Include information like your client's name and address, your name and address, an invoice number, and directions on how to pay. You should also make the due date clear, so there's no confusion – then detail exactly what happens if the invoice is paid late.
6. Create a solid follow-up strategy.
Not all your customers will pay their invoices immediately. Some won't bother paying them at all. You'll need to have a solid follow-up strategy in place for these customers if you want to get faster access to your money. Start with an automated reminder or a quick email the day after the invoice is due; many customers neglect payment simply because they forgot about it. Automating the first step will help rectify these simple mistakes much faster and without spending many person-hours to do it.
After that, follow up with a phone call or several phone calls if necessary. Remain polite, but firm as you explain the situation and provide options to your customers. Try to work out a payment plan or come up with a different compromise if your customer struggles to afford your invoice amount. These alternate payment arrangements may not be an ideal financial situation for your business, especially if it means collecting less money than the total due. Still, at least you'll start generating cash flow.
If your customer continues to avoid you, or if they outright refuse to pay, you may need to escalate the situation. Depending on the details of the matter, it may be advisable to hire a lawyer. They can discuss your legal rights and possibilities for taking further legal action.
7. Consider invoice factoring.
If you're eager to get cash and your customers aren't paying quickly enough, you could also consider invoice factoring as a way to get paid within 24 hours. In this arrangement, you'll essentially "sell" your invoices to a factoring company at a discount in exchange for immediate cash. In addition, the factoring company provides accounts receivable management free of charge. This benefit removes your organization's burden of collection efforts and improves AR efficiency. The only downside is that you'll be selling the invoice for less than what you're trying to collect, meaning you'll sacrifice some revenue in the process.
Additional Tips for Success
You'll also want to consider following these essential tips for more efficiency in your accounting department overall:
But, first, use a mix of strategies.
You can use several strategies to streamline the efficiency of collecting money from your customers, as you've seen. Some of these strategies are stronger than others, and some are more accessible than others. Some of these strategies may not fit well with your business. If you want to see the best possible results, it's good to mix multiple strategies together. This way, you'll have a more significant impact on a greater percentage of your customers.
Build a system with your employees.
There are some benefits to top-down planning, especially in a new business, but if you want to build an invoicing and follow-up process that works, it's best to work directly with your employees. You may know what kind of software you want to use, and some of the high points of the process you envision, but your employees will have a much better sense of how your process will unfold on a day-to-day basis. In addition, they'll be able to give immediate feedback and provide some direction to help make the system as easy to follow and as effective as possible.
Document your process.
When you start generating a formal process, make sure you officially document it. Having firm documentation in place will increase consistency between your employees and prevent the department from deviating from your original goals. Having formal documentation also makes training much easier, so if you hire new accountants or if you have some new transfers, you'll be able to bring them up to speed in no time.
Always remain calm and polite with customers.
It can be frustrating to deal with a customer who refuses to pay your invoices. It's even more frustrating if you have direct conversations with them, and they still find a way to weasel out of payment. However, it's important to remain calm and polite with all your customers as you try to collect payments from them. You'll provide them with a better experience, minimizing the chances they'll leave bad reviews. In addition to that, you'll have a much clearer case if you ever have to argue about it in court. And most of all, your business will preserve a much better reputation with other customers.
Get feedback from both ends.
Collect feedback from your employees as well as your customers. For example, does your invoice follow-up system seem reasonable to your customers? Is it easy for them to make payments? Do they feel like you're offering enough financial flexibility? And what about your employees? Do they find it easy to follow the processes you've outlined? Do they have all the tools they need to collect payments from customers efficiently?
Objectively measure your results.
Beyond subjective feedback, you should also take the time to measure your results objectively; however you can. For example, you might notice that your number of abandoned carts begins to decline after you change your payment acceptance system. Or you might notice that despite consistent revenues, your cash flow is improving. Keep an eye out for these measurable indications that your strategies are paying off.
Be willing to change.
Finally, don't be afraid to make some changes. After following a specific process for a few weeks, or even a few months, you may notice that it needs some improvements. For example, you might be able to cut out a few steps of your current workflow, you might be able to upgrade your software, or you might be able to train your employees on a new process; whatever you do, you'll have the possibility of increasing your organizational efficiency even further.
Finding What Works for Your Business
Your business may benefit from one of these strategies more than the others. Or, it may require a combination of many different strategies before you can get the results you want. So, keep fine-tuning your model with new technologies, new tools, and new customer invoicing approaches to see a significant improvement in your cash flow.