Cash flow is the lifeblood of a company – but every minute spent managing it is another one spent on not making a sale or focusing on your core business. The goal for any business is to make managing cash flow as easy as possible to ensure it gets paid without detracting from its purpose.
Here are five ways to make sure your business is on the right track:
1. Set payment terms and keep a tight lid on them
When signing your first contract, it’s easy to get carried away and agree to unfavorable terms to get the business going or when signing up as a supplier to a big name – but sign contracts with careful consideration.
Although your business can get a boost from having a big name on the books, you can also be waiting a long time to get your hands on cash. If you can afford a hit on your immediate cash flow, it could be worth it in the long run, but make sure before agreeing to the terms that your business can thrive, not just survive, in the meantime.
2. Accurate invoicing
It costs $11 to process the average invoice, in time and material costs, and $20 to resolve an invoicing dispute. Invoicing seems like a simple process but no one is perfect and mistakes due to human error are inevitable even in the best run companies – and the costs add up. If you have a system in place to double check that invoices are complete and accurate – i.e., up-to-date PO and reference numbers – it is possible to mitigate the cost of mistakes.
When you consider that somewhere between 10 to 40% of paper invoices come into dispute, it is clear that the benefits of a little extra time spent fact-checking can save in the long run – not to mention the fact that you won’t get paid until the invoice is accepted.
3. Identify your bottlenecks
Do you have a recurring issue with cash flow? Is there a customer that is repeatedly late on payments? These are systematic problems that need to be addressed. A chronically late payer can be put on shorter payment terms when contracts are renegotiated in order to force them to pay up earlier, shoring up your cash flow and preventing the culprit from using delaying tactics.
4. Online invoicing pips the post
With paper invoicing, data is taken from a computer system, printed onto paper, sent in the post, copied from paper to the recipient’s computer, processed and paid. That process takes days, even when assuming that there are no disputes that would lead to the process starting again. Paper invoicing is not only time-consuming but wasteful.
One of the great advantages of online invoicing is that it ensures visibility. When you entrust invoices to the post they vanish until acknowledged by the customer – once they finally get around to opening it. It is impossible for invoices to get “lost in the post” – an excuse you almost undoubtedly have heard before – as you can see immediately that the invoice has been transferred – with a clear audit trail.
With an online invoicing system, invoice data is sent directly to the recipient’s computer and can be accepted or rejected and resolved on the same day, with little to no material cost. The time and cost savings can be invaluable to speeding up cash flow. For a modern day business, operating with paper invoice system is akin to using carrier pigeon for communication.
5. Maintain good relationships
Though it may sound obvious, maintaining good relationships with other businesses can help dramatically in reducing the amount of time it takes to get paid. If the person in charge of finances likes you, the chances of your invoices getting taken care of right away are that much greater. Alternatively, getting an extension on your own payments is easier too! At the end of the day, doing business is largely a social process.
These are five simple steps and processes businesses can follow to manage cash flow more easily, turning it into a controlled business process instead of a constant fire fight. The more efficient these business practices, the faster you get paid.
[frame_left src=” https://yfsmagazine.com/wp-content/uploads/2011/09/Christian-Lanng-100×100.jpg”] Christian Lanng[/frame_left]
Christian Lanng, is the CEO of Tradeshift, the fastest growing social network for businesses, connecting businesses so that exchanging business documents in real-time with suppliers and buyers is easy and efficient whether or not they are on the network. In addition to providing free online invoicing, Tradeshift offers its users a rich set of B2B apps that enhance the features and functionality of SMB processes. Connect with Christian on Twitter at @tradeshift.
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