Are Your Actions Contributing To Cash Flow Issues?

Are your actions (or lack thereof) contributing to business cash flow issues?

Lack of Timely Billing

Slow or delayed billing can materially affect business cash flow.

Clients have internal A/P processes which must be observed. Slow or delayed billing can potentially increase client payment turnaround time which will subsequently impact business cash flow.

Prioritize billing and get client invoices out in a timely manner.

Pre-Billing vs Post-Billing

When working on projects that may have upfront passthrough costs, opt for pre-billing rather than post-billing some or all of the project. Be certain to properly earmark the prepaid funds upon receipt.

This ensures you’ll have the necessary cash on hand to cover those upfront passthrough costs without tapping into operating funds.

As work is completed and income is earned, a proportionate share of the earmarked prepaid funds can be reconciled and recorded as income.

Payment Terms

Offering clients generous, flexible payment terms may sound good on paper but it certainly won’t help your business cash flow needs.

Due on receipt or NET 30 payment terms are relatively standard though you may see NET 10, NET 15, or even NET 20 payment terms now and then. Anything beyond NET 30 will be a stretch unless your business is cash heavy.

Generally, opt for Due on receipt while extending the courtesy of up to thirty days to pay (if appropriate).

Be sure to clearly specify payment terms on invoices as well as on applicable contracts/agreements and if necessary, corresponding statements of work (SOWs).

Keep in mind that some clients have strict procurement procedures which may result in extended payment terms (ex: NET 45+). This is something business owners and leaders need to consider carefully before taking on the client.

Monthly Statements

Do you send monthly or month-end statements to clients?

Statements can serve as a payment reminder as well as a monthly check to ensure clients have received and put through all invoices into their A/P for payment processing.

Each client may have a different A/P approval/submission process so it’s essential to make sure clients have received all invoices and get the ball rolling internally so undisputed invoices can be processed and paid in a timely fashion.

Poor Collections Process

What’s your process for collecting on past due invoices?

Do you send past due notices with appropriate follow-up (additional e-mail correspondence, phone calls, escalation)?

Your business is reliant on steady cash flow which means sitting on your hands hoping a past due client payment will just show up at your doorstep is time wasted and will only exacerbate your cash flow issues.

Be proactive and follow-up with clients while escalating accordingly.

Electronic Payment Options

Do you offer your clients electronic payment options?

While not every client may give up on remitting payments by traditional paper checks, it’s certainly worth offering electronic payment options and encouraging clients to use them.

Electronic payment methods are generally more secure than traditional paper checks and most financial institutions offer electronic bill pay options that are relatively straightforward to use.

In turn, your business will receive payments faster with less clearing time.

Keep in mind some electronic payment options may incur a service fee/charge depending on the financial institution or payment method. Be sure to check with your financial institution or service provider about potential service fees/charges associated with electronic payment offerings.