Cash is king, so you better look after it

At its simplest, cash flow management means delaying outlays of cash as long as possible while encouraging anyone who owes you money to pay it as rapidly as possible.

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Cash is king when it comes to the financial management of a growing company. The lag between the time you have to pay your suppliers and employees and the time you collect from your customers is the problem, and the solution is cash flow management. At its simplest, cash flow management means delaying outlays of cash as long as possible while encouraging anyone who owes you money to pay it as rapidly as possible.

Measuring Cash Flow

We all know the saying that says: “You can only manage what you measure!”. This was probable written specifically for cashflow management, as nothing is more important when it comes to ensuring you have cash available for those dry runs.

Prepare cash flow projections for next year, next quarter and, if you’re still a small business, next week. An accurate cash flow projection can alert you to trouble well before it strikes.

Understand that cash flow plans are not glimpses into the future. They’re educated guesses that balance a number of factors, including your customers’ payment histories, your own thoroughness at identifying upcoming expenditures, and your suppliers’ patience. Watch out for assuming without justification that receivables will continue coming in at the same rate they have recently, that payables can be extended as far as they have in the past, that you have included expenses such as capital improvements, loan interest and fixed expense payments, and that you have accounted for seasonal sales fluctuations.

Start your cash flow projection by adding cash on hand at the beginning of the period with other cash to be received from various sources. In the process, you will wind up gathering information from salespeople, service representatives, collections, credit workers and your finance department. In all cases, you’ll be asking the same question:

“How much cash in the form of customer payments, interest earnings, any collection of bad debts, and other sources are we going to get in, and when?”

The second part of making accurate cash flow projections is detailed knowledge of amounts and dates of upcoming cash outlays. That means not only knowing when each penny will be spent, but on what. Have a line item on your projection for every significant outlay, including rent, inventory (when purchased for cash), salaries and wages, sales and other taxes withheld or payable, benefits paid, equipment purchased for cash, professional fees, utilities, office supplies, debt payments, advertising, vehicle and equipment maintenance and fuel, and cash dividends.

“As difficult as it is for a business owner to prepare projections, it’s one of the most important things one can do,” if I can quote myself. “Projections rank next to business plans and budgets among critical things a small business must include in its financial management plan.”

You may want to read “6 Cashflow mistakes your startup should avoid”

Improving Receivables

If you got paid for sales the instant you made them, you would never have a cash flow problem. Unfortunately, that doesn’t happen, but you can still improve your cash flow by managing your receivables. The basic idea is to improve the speed with which you turn materials and supplies into products, inventory into receivables, and receivables into cash. Here are specific techniques for doing this:

• Offer discounts to customers who pay their bills rapidly.
• Ask customers to make deposit payments at the time orders are taken.
• Require credit checks on all new noncash customers.
• Get rid of old, outdated inventory for whatever you can get.
• Issue invoices promptly and follow up immediately if payments are slow in coming.
• Track accounts receivable to identify and avoid slow-paying customers. Instituting a policy of cash on delivery (c.o.d.) is an alternative to refusing to do business with slow-paying customers.

Managing Payables

Top-line sales growth can conceal a lot of problems-sometimes too well. When you are managing a growing company, you have to watch expenses carefully. Don’t be lulled into complacency by simply expanding sales. Any time and any place you see expenses growing faster than sales, examine costs carefully to find places to cut or control them. Here are some more tips for using cash wisely:

• Take full advantage of creditor payment terms. If a payment is due in 30 days, don’t pay it in 15 days.
• Use EFT payments on the last day they are due. You will remain current with suppliers while retaining use of your funds as long as possible.
• Communicate with your suppliers so they know your financial situation. If you ever need to delay a payment, you’ll need their trust and understanding.
• Carefully consider vendors’ offers of discounts for earlier payments. These can amount to expensive loans to your suppliers, or they may provide you with a change to reduce overall costs. The devil is in the details.
• Don’t always focus on the lowest price when choosing suppliers. Sometimes more flexible payment terms can improve your cash flow more than a bargain-basement price.

Surviving Shortfalls

Sooner or later, you will foresee or find yourself in a situation where you lack the cash to pay your bills. This doesn’t mean you’re a failure as a businessperson-you’re a normal entrepreneur who can’t perfectly predict the future. And there are normal, everyday business practices that can help you manage the shortfall.

The key to managing cash shortfalls is to become aware of the problem as early and as accurately as possible. Banks are wary of borrowers who have to have money today. They’d much prefer lending to you before you need it, preferably months before.

When the reason you are caught short is that you failed to plan, a banker is not going to be very interested in helping you out.

If you assume from the beginning that you will someday be short on cash, you can arrange for a line of credit at your bank. This allows you to borrow money up to a preset limit any time you need it. Since it’s far easier to borrow when you don’t need it, arranging a credit line before you are short is vital.

If bankers won’t help, then turn to your suppliers. These people are more interested in keeping you going than a banker, and they probably know more about your business. You can often get extended terms from suppliers that amount to a hefty, low-cost loan just by asking. That’s especially true if you’ve been a good customer in the past and kept them informed about your financial situation.

Consider using factors. These are financial service businesses that can pay you today for receivables you may not otherwise be able to collect on for weeks or months. You’ll receive as much as 15 percent less than you would otherwise, since factors demand a discount, but you’ll eliminate the hassle of collecting and be able to fund current operations without borrowing.

Ask your best customers to accelerate payments. Explain the situation and, if necessary, offer an early settlement discount of a percentage point or two off the bill. You should also go after your worst customers-those whose invoices are more than 90 days past due. Offer them a steeper discount if they pay today.

You may be able to raise cash by selling and leasing back assets such as machinery, equipment, computers, phone systems and even office furniture. Leasing companies may be willing to perform the transactions. It’s not cheap, however, and you could lose your assets if you miss lease payments.

Choose the bills you’ll pay carefully. Don’t just pay the smallest ones and let the rest slide. Make payroll first-unpaid employees will soon be ex-employees. Pay crucial suppliers next. Ask the rest if you can skip a payment or make a partial payment.

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Top seven tips to get paid faster

We don’t need a fortune cookie to know that cashflow is the lifeline of every business, so we can all do with a few tips to get paid faster.

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Cashflow plays such a critical part in the success or failure of small businesses that it sometimes boggles my mind to see customers chasing new clients to make up for cash shortfalls instead of following up on the payment of already issued invoices. The reality is that positive cashflow doesn’t simply start and end with sending your client an invoice – more often than not, the hard work only comes thereafter.

More often than not we encounter the following excuses from small business owners when they face up to their cashflow difficulties:

• What if you annoy them by asking for payment and they don’t want to work with you again?
• What if you offend them, and they were about to pay you anyway?
• They’ll pay you in their own good time, following it up makes it look like you don’t trust them.
• You don’t want to come across as ‘pushy’ and you want to keep a good relationship with them.
• The thought of asking for payment seems a bit ‘urghh’ and actually you’d rather even make those sales calls you hate instead!

Hard truth time – if you have outstanding monies due to you, you could be storing up a serious cashflow problem. In fact, this may be having a negative impact on your business right now.

Over 1,500 members of an online business community recently shared their experiences about invoicing and payments with Xero. We’ve taken the best of their helpful advice and feedback, and summarized it here:

Top seven tips to get paid faster

Getting paid and having a healthy cashflow is the lifeblood of every small business, but it’s not always as easy as sending an invoice at the end of the month. You’ll be laughing straight to the bank with these top invoicing tips.

Discuss payment terms before you get started

Getting this sorted upfront means that there is no confusion down the track. It also sets the clients expectations around payment before you start the work.

Keep detailed records of inventory and time

This saves time when it comes to creating the invoice and makes sure you don’t miss anything. It also means if things are going over budget you can let your client know, instead of sending them an expensive surprise at the end of the month.

Make the invoice clear and easy to understand

List the details of the job in a way that makes sense to the client, any confusion could create a payment lag. It’s also good to personalize your invoice with your business logo – it helps carry on the professionalism of your work.

Set appropriate payment terms

If you need to receive payment within 30 days, our data reveals that you will need to set your payment term 13 days or less. Keep in mind that on average, debtors pay invoices two weeks after the due date.

Address the invoice to the person paying

Make sure your invoice goes straight to the person who makes payment to avoid getting lost in someone else’s inbox. If you’re unsure exactly who that is, give them a call – it pays to know the person paying the bills.

Invoice as soon as possible

Send your invoice as soon as possible, the sooner a client receives an invoice the sooner they will make payment. It also means they will receive it when the value of your work is still fresh in their mind. Accounting software that lets you create professional recurring invoices will streamline the invoicing process.

Keep on track with debtors

The squeaky wheel gets the oil. When things become overdue, send reminders, monthly statements or make a phone call. It will help remind your client that you are serious about getting the invoice paid. Some accounting software sends you an update when the invoice has been opened.

 

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Did you know that with cloud accounting it is possible to automate your invoice follow-up procedures?

If you’re tired of the emotional drain this has on your business, sign up for your free 30 day trail today!

 

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For the rest of you that want to continue hacking away at getting the money in the bank, the following Infographic courtesy of our friends over at Debtor Daddy might be helpful…

Image courtesy – Debtor Daddy

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Small Business owners speak up: “We suck at invoicing!”

One of the biggest small business invoice challenges out there, is getting them paid on time!

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Managing cash flow in your business can be one of the trickiest parts of running your business. Recent data compiled by the research firm CB Insights found that 29% of startups fail because of a cash crisis. It was the second highest cause. (The number one factor, at 42%? A lack of a need for their product in the marketplace.)

Some small business owners seems to forget that their cashflow starts with the actual invoice they send to their customers – or not. Having consulted with a specific client for a number of years, it always blew my mind when we analysed their management accounts and their revenue was way below their budgeted figures and cashflow as a result extremely volatile.

Turns out after digging a bit deeper into the root cause of this, was that the partners of this firm felt that they couldn’t invoice the full work-in-progress (even though the customers signed off on it) at each stage of completion of the project. So instead of invoicing a smaller amount each month, they refrained from invoicing altogether! Now for most of us this seems insane, but this was a real problem for them that took us quite a while to sort out and for them to realize that everyone is entitled to fair compensation for their efforts.

This is just one of many challenges small business owners face and we found it quite interesting when we investigated the below mentioned summary of challenges small business owners suffered globally:

Small Business invoice challenges

Getting invoices out on time when you’re busy

This is a common problem. When your business is thriving and you’re busy working to make money, taking the time out to send invoices can be difficult. Consider using cloud accounting software to quickly prepare and send invoices.

Following up on overdue invoices

This is related to the previous point – time is always at a premium in a busy small business. Again, cloud accounting software can help by automating reminders based on your settings.

Splitting payments across multiple invoices

Account reconciliation can be tricky at times. Make sure your clients include your invoice numbers as references for every payment they make, to help you work out which invoices have been paid.

Invoicing quickly and accurately

It’s important that your team communicates effectively with your Finance Manager or accountant, to ensure that work carried out is invoiced properly every time.

Ensuring that all completed work is invoiced

Time-tracking software can be useful here, especially when there are several people working on each client account. Be sure to get this right, otherwise your business will be throwing away money by working for nothing.

Creating an invoice that doesn’t go to the bottom of the pile

You can design your invoices so that they stand out, but what’s more helpful is to build up a good working relationship with your client’s accounts department. Don’t rely on a pretty invoice to get you paid.

 

 

 

 

 

 

 

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Top 9 invoicing tips when starting your business

These invoicing tips when starting your business will ensure that you can send invoices and receive payment with the shortest amount of time in between – improving your small business cashflow!

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For freelancers and small business owners, you may enjoy your work but you know that there’s more to your business than just that. You also need to get paid. That’s why it’s important for you to send out and receive payment on your invoices in a short amount of time.

The financial aspect of your business is crucial if you want to succeed, so today we’ll look at some of the surefire invoicing tips for small businesses and freelancers. You’ll be able to employ these effective invoice tips so you can get paid faster.

Top 9 invoicing tips when starting your business

1. Provide Quotes and Agreements Prior to Invoicing

   In order to save the hassle of questions and disagreements later when the actual invoice comes, be proactive with all customers by making sure they understand what the project will entail and the costs associated with this work, prior to the beginning the work on this particular project.

   An agreement form can also clarify your payment terms and establish a positive working relationship from the get-go, so you don’t have to spend time later answering questions and addressing concerns.

2. Add Details and Branding to Your Invoices 

   Your invoices should identify clearly your company and its brand to help your clients understand where the invoice is coming from, plus you can continue to emphasize your brand’s values this way through consistent attention in all communications.

   The details on your invoice should also include a numbering system so you can track your billing and quickly find an invoice that may be in question. Add all the possible ways there are to contact you, including address, email address, and phone number.

   Lastly, don’t leave off any specific details about the work completed or the payment terms. Even if those have been included in an agreement form or quote, it’s important to reinforce them through every invoice you issue.

3. Track time accurately
   

   It’s not enough to do the work and then try to recall how much time you’ve spent on it. Set your timer when you begin and switch it off when you finish. Include all the hours you work on each client’s projects. That way your invoices will be accurate.

   Cloud Accounting software allows you to pull the data directly from a time keeping system, so it is worth your while to look at options through which you can virtually automate this process.

4. Account for administration time
   

   For some business owners, they said that invoicing can take up to 10 percent of work time in terms of creating, sending and chasing invoices. That can cause a drag on your other administration work, so be sure to factor this into your planning and accounting strategies.

5. Invoice the right person

   This may sound like a silly one, but that’s not always the same as the person you’re actually doing the work for. Make sure you get the correct billing details for all your clients, otherwise your invoice could end up on the wrong desk… and stay there.

6. Send Invoices Promptly
   

   Don’t feel like you need to wait for a certain time that you think is appropriate for customers to pay. It’s important to send out your invoice as soon as you have completed work.

   If you are just starting a project and pre-bill, get that invoice to the client immediately. This way, you are at the top of their mind and are more likely to also get paid quickly.

7. Invoice on the go
   

   Get rid of any paper-based invoicing process. Even if you only do a few invoices a month, it takes too much time and money to compile and send paper invoices. Instead, automate the process with invoicing software and online tools that often work in the cloud.

   Why wait until you get back to the office to send an invoice? Some of our online community members have sent invoices while on the train, from airport lounges and even while volunteering at a charity. Cloud accounting software makes that easy. The smaller the time gap between providing the service and issuing the invoice, the more likely it is that you’ll get paid quickly.

   This means you will be able to create and send invoices from wherever you are working and save money by not buying paper, ink cartridges, envelopes and postage. Then, you won’t be making those trips to mail the invoices. Instead, you will be sending them from the software to your customers’ email addresses.

   Even better is to also automate the reminders and acknowledgements that your invoicing software can send on your behalf, so you can win that time back for yourself to work on something else.

   Lastly, by taking a few of these steps you are reducing those chances for human error that then end up costing you even more time. Add automated payments to your work flow and you will really gain some momentum in the extra time you gain!

8. Give Customers a Way to Pay Just as Fast
   

   New technology is available that allows a customer to pay directly from the invoice in their email, speeding payment to you for greater cash flow and less stress. These online payment options provide more options as well, including direct debit from a bank account, credit and debit card options, and Paypal.

   With so many options to pay from their phone or other device, customers are sure to pay you just as fast.

9. Follow up invoices
   

   When an invoice hasn’t been paid, some business owners may feel nervous about asking for payment. There’s nothing wrong with reminding a customer about money for the work you’ve completed or the products you have shipped out and they’ve received.

   Invoices might be ignored, lost in the mail or left unopened in the recipient’s spam email folder. So follow up and make sure your invoice has been not only received, but actually opened and read.

   You can personally contact them or use your invoicing tools to set up automated payment reminders.

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