Cashflow problems don’t discriminate.  Even profitable businesses with ‘plenty of revenue’ & interested investors can have cash flow difficulties.  Studies show that over 80% of small businesses failures are due to poor cash management.  Your business may be this year’s Tickle Me Elmo or Pet Rock but if you are unable to manage cashflow, the business could be forced to close its doors.

This post outlines cashflow problems & solutions any business can implement around its invoicing function.

Invoice scheduling   

Business owners get busy & administrative functions like invoicing & vendor payment can fall by the waste side.  Inconsistent invoicing policy can leave collection timing in question.  Business should designate a day of the week or month for invoicing & stick to that schedule.  Depending on the industry, invoicing may only need to be done once a month & others may need to invoice weekly.  Look at your industries standards & start developing your schedule from there.

Invoice Terms, Early Pay Discounts & Delivery Method

Default payment terms have historically been 30 days.  This policy dates to a time when invoices & payments were mailed.  In today’s market, invoices tend to be sent through email & speed up the process.  A study by Xero (cloud accounting software) shows that customers on average pay invoices two (2) weeks late.  Do you offer incentives for early payment?  Do you discount for upfront payment?  What are payment term standards in your industry?  Consider payment & incentive trends in your industry & the marketplace in general & revise payment terms accordingly.

Collection & Payment Reminders

Having a schedule for payment & collection reminders is just as critical as how often invoicing is performed.  If an invoice is sent off without follow up, the likelihood of timely collection diminishes.  Set up a schedule that manages the timing of each phase of collection.  Consider contact to confirm receipt of invoice & reminder of due date in the days prior.  If your customer utilizes an invoice & payment portal, ensure you are loading invoices correctly & receiving confirmation of receipt.  You don’t want to find out when once the invoice is severely past due that you didn’t load the invoice in the portal correctly & will have to wait another period for payment.  Once the invoice has become past due, send out another email & begin telephone contact to determine if there are any other issues.

A firm understanding of where customer invoices are in the collection process is necessary in the cash flow forecast & projection process.  Cloud accounting systems can be set up to support the collection process with reminder emails & electronic cash collection which both speed up the collection process.  If you are not using cloud accounting, consider it & other apps to support your business.  Most are inexpensive, user friendly & improve workflow efficiency.

Cash flow problems can be serious and threaten your ability to stay in business. If you don’t have direct financial experience, consider working with a CPA or financial expert to help you determine which problems you have – and how to solve them.  If your accountant or CPA doesn’t offer cash flow forecasting & projection services we can help.  You don’t even need to be in the same part of the US… we can work with you from anywhere.  With real-time cloud accounting access, your accountant & trusted business advisor located anywhere in the world can help you operate, understand & grow your business rather than just adding up the numbers.  To find out more about business planning, contact us at bodhi@bodhibusinessadvisors.com.


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