Improving cash flow is crucial for a company’s health. To do so, consider payment terms, late payment fees, discounts for early payment, timely invoice submission, and understanding customer payment policies.
Making improvements to the company’s cash flow is important to the overall health of the company. Even large companies with lots of resources on hand want to manage their obligations through a constant influx of cash from accounts receivable rather than from other sources. There are actually several ways to improve business cash flow, with a focus on organization and efficiency on your end.
One of the first issues to consider if you want to improve your company’s cash flow is to look into the payment terms and conditions that extend to your customers. While 30 days is normally the minimum terms, there are companies that go with 20 day terms, which means that the invoice is considered overdue if payment is not offered within 20 days of the invoice date. In addition, more and more companies are imposing small late payment fees, usually one to two percent of the face value of the invoice. Adding this provision to your terms and ensuring that customers are aware of the changes can motivate them to remit payments sooner, which in turn speeds up cash flow.
Another type of incentive to improve the company’s cash flow is to offer some type of small discount if the invoice is paid within a certain time frame. For example, your payment terms might be the standard 30 days, but promising the customer a two or three percent discount on next month’s bill might be just what they need to issue a payment sooner rather than later. The end result is that you get paid a week or two earlier than usual, and you can put that money to good use in settling obligations with your vendors and suppliers.
Timely submission of invoices is also key to improving your company’s cash flow. Ideally, invoices are mailed or electronically the same day they are completed and approved. Taking several days to mail completed invoices normally won’t have a huge effect on customers, but every day you delay mailing those invoices, which is another 24-hour period in which you are late receiving a payment on your invoices. Move them as quickly as possible and increase your chances of getting paid faster.
A final tip for improving business cash flow is to understand the payment policies of your largest customers. It’s not uncommon for many businesses to cut checks for payments only on specific dates of the month. This means that if the invoice arrives the day after the normal payment approval and dispatch, the invoice will languish until the following week, two weeks or even longer. If possible, set the time for releasing invoices to high-profile customers to be received a few business days before this cutoff period, allowing access to the next set of issued payments and avoiding being scheduled to pay at address a later date.
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