5 Tips for Making Sure Your Cash Flow Doesn’t Dry Up

August 11, 2016

1:15 pm

Cash flow is a problem for every startup. One study revealed that 82 percent of small businesses and startups fail because of poor cash flow management. Without good cash flow management, you’re going to be left without any capital to manage your day-to-day operations.

But by following these five tips you can make sure your cash flow doesn’t dry up. You’ll still have money to generate more sales and you’ll be able to cover your regular expenses.

Have a Good Relationship with Your Bank

It doesn’t matter if you’re taking out a loan, taking on investors, or bootstrapping your startup. You might need money one day. The problem is people try to establish a line of credit when they’re in trouble. They don’t try to do it when everything is going well.

Good luck trying to get that line of credit after you’re in financial difficulties. A positive relationship with your bank will make it more likely that you can get that emergency funding if something goes wrong. Do your research and make sure you’re picking the right bank for your business.

Shorten Your Payment Terms

When you make a sale you know the buyer will have a certain period of time to pay up. This could be anywhere from two weeks to three months. Try to ask for a partial payment upfront, but also try to shorten your payment terms, especially in the early days of your business.

There’s nothing wrong with putting this on the table because the worst they can say is no. Explain your situation and most loyal customers will understand.

Later on, you can start to give more favorable terms to your most loyal customers.

Talk to the Person Making the Purchase

It’s amazing how many startups will suffer in silence. They won’t say anything to the customer because they think that the customer will get angry or think of them as unprofessional. The right person to talk to is the person making the purchase from you. Explain the realities of your firm’s cash flow.

Few customers will continue to resist unless they genuinely can’t afford to pay you right now. It also helps to be firm, especially if you’re issuing ongoing services. A simple threat to pull back your services will often force people to pay up. You’ll find it amazing how many buyers will find the money from somewhere at short notice.

What you need to understand is that most buyers will wait until the end of the payment period because it helps their own cash flow. It’s much easier for them to stretch things out, even if they can pay earlier.

Do You Know How Your Customer Processes Invoices?

Most firms will only process invoices twice a month. This tends to be on the first day of the month and the fifteenth of the month. Outside of these dates, the accounts payable department will transfer invoices to the following full period. This means if your invoice arrived on the sixteenth of the month another fourteen days would be added, so it would actually be a month before you get your payment.

To make sure you get paid you should understand this system. Deliver your invoices a few days in advance of these dates. Remember that the clock only starts once the accounts payable guy puts the invoice into the system, rather than when they receive it.

Get the Invoice Approved

There are so many excuses people will have for not paying an invoice. These excuses are used so they can delay paying you your money as soon as possible. Startups often fall victim to this because buyers believe they can be pushed around. Work through the customer’s processes with them.

It can be as easy as sending an invoice electronically and asking for a confirmation. Explicitly tell them you want to forward it to the accounts payable department.

You could even visit them in-person with a hard copy. This also helps if you want to discuss the next project with them. There’s nothing like a good face-to-face meeting to work things through. It demonstrates a personal touch that could be the making of your startup.

Don’t Get Bullied

Startups need sales and they need them now. One thing you shouldn’t do is allow yourself to be bullied into accepting payment terms that don’t suit you if you’re a startup that wants to grow quickly. Cash flow is a serious problem and you shouldn’t have to dig deep just to get through to the end of the month.

Be firm and set out your expectations immediately.

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I'm a lifetime blogger, entrepreneur and marketing enthusiast.

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