Business and EDU

Dealing with Cash Flow Challenges


One might think a lack of business is a primary cause of money troubles for a business. But, the biggest problem is actually cash flow issues. You are getting money, it is just not being managed properly. This can be the kiss of death for even the most successful business. Here are some tips to deal with an issue that can make or break your venture.

Take Responsibility

It is easy to lay the blame outside of yourself when it comes to cash flow problems. If late-paying clients are part of the equation, it is easy to point to them as the source of your financial woes. But, if you are serious about fixing this problem, you must take a good hard look at what you have been doing, and how you are contributing to the problem. We cannot fix problems if we do not take ownership of them.

Create Structure for Invoicing

If you do not have a solid process in place for billing clients and following up on late payments, you are doomed. Having worked for a collections company a few years back, it amazed me how poorly these businesses managed their receivables. If feasible, consider deposits before commencing work, rather than not collecting a cent until after the work has been completed or the product delivered. Invoice clients immediately rather than sending out your bills in batches.

Get a solid system in place for monitoring payments and following up on the past dues. Once a bill is one day late, follow up with the client to ensure the bill was received. Devise a follow-up system where you will follow up every X number of days; figure out the modes of contact for each follow-up.

Hold onto Money as Long as Possible

There is a great psychological benefit to paying bills as soon as you get them. No need to worry and you feel good about your fiscal responsibility. But, if you are having cash flow problems, waiting to pay bills until they are due can help you hold onto cash that you need to run your business.

Negotiate Payment Terms with Vendors

When vendor bills come due before customer payments have come in, you will find yourself in a bind. You may have trouble paying on time or you are dipping into money that is needed elsewhere. Reach out to vendors about changing payment terms so that your payments from customers are coming in first, not supplier invoices.

Financing Options

There are plenty of companies that can give you the money you need to run your business. Invoice factoring allows for immediate payment on invoices, minus the company’s fee of course. Once you invoice a client, you can get anywhere from 80 to 90 percent immediately, with the balance being paid when your customer pays back the invoice directly to the factoring company. If you get a big order from a customer, but do not have the money to purchase the goods, non-equity PO financing can help. The company will front you the money to the manufacturer and collect their share when the client pays you. This is only an option for certain types of orders, such as fully manufactured goods that you are just reselling or goods that only need slight modifications.

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