4 Ways To Speed Up Cash Flow
It’s great to find clients and deliver high quality work, but sometimes the effort to get paid for that work is greater than it should be.
This was especially true during the heart of the pandemic. Many small businesses faced challenges in not only billing clients, but also collecting payments on those invoices. According to a recent survey of 3,139 small businesses, one of the three biggest challenges SMBs faced in 2021 was “managing my cash flow and payments collection.”
As businesses moved to remote work, accounting personnel were often not in the office. They may still be working remotely or hybrid today. This led to the conundrum of how to collect payments. Companies already using a lock box were in a better position, since that did not require anyone to physically be in an office to receive the mail. But if you were one of the many companies relying on checks arriving by mail, processes had to be adjusted. A rotating schedule to go to the office and grab the checks had to be created. If desktop scanning of checks wasn’t an option, companies had to then drive checks to the bank.
4 Best Practices for Faster Cash FLow
So, what can businesses do to overcome paper check challenges? Here are some best practices to facilitate payments.
- At a minimum, set up remote deposit capture. This allows scanned copies of checks to be deposited into business accounts. Scanners can be purchased or provided by your bank and security protocols can be implemented to control access to remote deposits.
- Establish a lockbox for payments with your bank. Detailed invoice data is available for payment application and funds are deposited into your account more quickly.
- Accept ACH payments from customers. By putting bank routing number details and an account number on the invoice itself, customers can set up electronic payments to go directly to your bank account and never need to cut a physical check. This saves your customers on postage and processing, and it saves you from the risk of physically handling the funds while giving you quicker access to them.
- Accept credit cards. Typically, there are interchange fees charged for accepting credit, but there are some processors that have programs around rebates and other ways to minimize the fees. There is also the option of passing the interchange fee back to the customer in some instances. Shop around with your bank and other processors for the best deal.
All this guidance assumes your clients are making payments. To expedite payments, be sure your invoicing cadence is consistent so that your client is expecting regular invoices and not receiving irregular payment requests.
To incent faster payment, consider offering a discount to pay in a shorter timeframe. For instance, if your typical terms are Net 30, you could add a discount of 2% if the payment is received within 10 days of invoice issuance.
Knowing when your customers typically pay facilitates your ability to forecast your incoming cash, which improves your ability to manage overall cash flow.
Ready to speed up your business’ cash flow? Contact Fahrenheit Advisors today to begin a conversation that will identify and deliver new efficiencies that accelerate growth.
About the Author
Cynthia Macturk is responsible for the accounting, information technology, facilities, human resources, and operations of the firm. In addition to managing Fahrenheit’s day-to-day functions, she provides technical and project support on advisory engagements. Her background includes developing and managing accounting departments, financial systems evaluations and implementations as well as international and mergers and acquisitions accounting roles. She is a member of Fahrenheit’s Leadership Team and was named 2022 Small Business CFO of the Year by Virginia Business magazine.