Has your business ever had a cash shortage? You’re not alone. According to a 2019 Intuit study , 60% of small business owners say cash flow has been a problem in their businesses. If that was 2019, where would the number land in 2023?
In this post-pandemic period we are in, I wouldn’t be surprised if that number is higher.
While there are some things about cash flow you can’t control, there is one area where you do have control.
What is AR?
AR refers to accounts receivable, which is the money that is owed to your business. You performed a service, or provided a product and allowed the purchaser to pay you over some predetermined period of time. Similarly, accounts payable, AP, is the money you owe to another business after receiving products or services.
AR can be anything from a sale to a customer on store credit, an in-house charge account, a subscription/installment payment, or simply allowing the client or customer to pay on terms. Net 30 would allow the client 30 days to make payment. The challenge with AR is that while it is convenient for the buyer, and may increase your chances of making the actual sale, AR is money you don’t yet have. This means it has a negative effect on your bank account and cash flow.
Here are some ways to better manage AR and make sure you’re staying on top of these payments.
Utilize electronic invoices and payments
When it comes to sending invoices and receiving payments, many people prefer the option to complete these tasks online or electronically. For starters, by sending invoices directly to a recipient’s email address, you can easily alert them when a payment is due. Many times, paper invoices can get lost in the mail, misfiled, or simply lost altogether.
To be honest, many small businesses are not the most organized in this area, so anything that can be done to streamline this process for them makes it easier on them . Quite frankly, most people are more accustomed to sending a payment online with just a few clicks as opposed to writing out a check and mailing it.
Offering online payments saves time on both ends. Investing in the software to allow this option for your business will certainly save you time and money.
Implement automatic payments
Automatic payments are another great way to ensure you’re getting your money on time and in the full amount. This is especially beneficial for both parties in the case that there are monthly fees for recurring services.
Consider that sometimes, things just slip through the cracks. it’s not a matter of not being able to pay – it’s a matter of forgetting to pay. Allowing customers to set up automatic payments is a great way to make the process easier for everyone involved.
Offer incentives/rewards
Here’s an idea that might positively impact your pocket and give your customer needed options: charge a lower rate for those who pay sooner versus later.
How this gets implemented variesby industry. We have all seen situations where there is one price for full upfront payment and another price – 5-20% higher – if paid over time.
Many businesses offer percentages or dollar amounts off the balance owed to customers who pay the full amount within a certain period of time. This can also be done using a single-use coupon, a bonus incentive, or a discounted good/service.
Require Some Funds Upfront
I suggest all my clients request at least a partial payment before starting work. Most of my clients are service providers and oftentimes there are upfront costs involved in order to provide the service.
One of my favorite athleisure wear companies is a small business that makes the clothing after you order it. They let you know up front that because of their ‘made-to-order’ process delivery will take around 14 days after you place the order and make payment. This is a great model to maintain control of cash flow. If you can’t get full payment upfront, at least get a deposit to keep the cash flowing so you can keep the company going.
If you need help setting up and generating accounts receivable (AR) reports, we can help. As business solutions experts, we have helped dozens of businesses untangle complex issues and clarify a path to greater profitability. Schedule a Discovery Session.
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