To improve the cash flow of your business, you have to maintain a positive cash flow and limit negative cash flow. According to Handy, it is crucial to maintain a positive cash flow to grow your business. However, many business owners find it difficult to maintain good cash flow management. A good way to improve the cash flow of your business is to apply smart invoicing habits. These are pretty easy to practice once you know how to do so.
Tips & Tricks
A few invoicing tips to improve the cash flow of your business is listed below:
- Use automated billing and invoicing software to send invoices quickly – Automated invoicing software allows you to forget the hassle of relying on pen and paper and makes your job a lot easier. You don’t have to struggle with the idea of being rude to your clients by sending invoices early. However, it also makes sure that you get paid on time, every time. You have the option to create automatic payments for processed payments, match customer time zones, allow for saved and preferred payment methods, offer recurring invoicing to multiple recipients, and more.
- Send periodic payment reminders to customers – Sending periodic payment reminders in the form of emails and texts or even calling them a few days before the invoice is due is a good practice. You can subscribe to a billing software to send automatic reminders before the due date, on the due date, and after the due date to customers who have yet to fulfill their obligation.
- Offer incentives to customers for timely payments – Incentives in the form of small discounts can be a powerful motivator to many customers. So, consider offering a discount of up to 5-10% to your long-term customers who regularly pay on-time or even before the due date. This practice has the potential to improve the business relationship with your customers a lot.
- Apply a penalty in the form of late-payment to customers who fail to pay on time – An invoicing software can help you attach a charge or fine to the invoice of customers who fail to pay on the due date. Make sure that your customers know the exact date of payment, any grace period, and the amount of fine they would be charged in the form of a percentage or flat fee. A typical interest rate of 1.5% per month is a good approach. However, it is important to do some research on the interest rate charged in the industry or your region before making a final decision.
- Break up the invoicing into milestone payments – Charging the payment up-front would prevent you from attracting clients and charging after the delivery of product or service is a risky move. A better strategy is to break the payment into multiple milestones. For example, you can charge 50% on order and 50% delivery. If you offer a service that requires multiple steps, you can break-up the payment into more than 2 payment milestones.
Handy believes that you should never be desperate to chase payments. It makes you look unprofessional and needy. In most cases, it is okay to offer a grace period of 1 week before you start taking any serious actions as it can ruin the business relationship with your customers.