We’ve all been there: That big order was suddenly postponed or canceled. Even our best paying customers take their sweet time sending the check. An unexpected expense drained our cash reserves. Whatever the cause, slow cash flow keeps us up at night.
With this in mind here are 7 tips for dealing with the situation:
- Access your line of credit. If you don’t already have one, see your bank and set it up today. You may have to pledge some assets against the line, so keep that in mind when you tap into it. The best time to set up your credit line is before you need it, of course. Then it will be there to help you through the lean times.
- Defer your salary. Not a pleasant thought, but sometimes necessary. As the owner, you need to protect your people and material assets. Not to mention staying current on all of your tax liabilities, as the IRS isn’t known to be sympathetic if you fail to deposit employee withholdings.
- Require progress payments. Whenever possible get the first payment up front and make it big enough to cover the initial job expenses. Then invoice the progress payments promptly.
- Offer discounts for prompt payment. If your usual terms don’t include these discounts, you may want to offer them to customers who traditionally take their time paying.
- Kill the vampires. One way to improve cash flow is to eliminate recurring expenses for things you can do without. They’re sucking out your cash a drop at a time. Are you paying for newsletters or periodicals you rarely read? Are there monthly fees for IT and other services you don’t need? Are you paying retainers for professional services you can likely obtain on an as-needed basis instead? Add them all up and they may help improve both cash flow and profits.
- Dial for dollars. Assign someone who can be pleasant but firm to call any late-paying customers on a regular basis to cajole them into paying. This also works with phones that don’t have rotary dials.
- Reevaluate your marketing efforts. Let’s face it: The best cure for poor cash flow is to get more business. Are you doing enough to attract new customers? Are you keeping in touch with customers who haven’t placed an order for a while? All businesses should have a strategic marketing plan that they act upon every day to keep the pipeline of orders full.