Company Cash Flow Improvement: 4 Steps
A positive cash flow is very important to our daily operations. However, a major stumbling block to attain this is the collection of accounts receivables. There are different ways to handle collection, ranging from friendly calls, automated email reminders, warning letters, and referral to debt collection agencies.
Don’t let yourself run the risk of not getting paid. Use a more proactive approach. Below is a simple step-by-step guide to improve your cash flow and reduce uncollected debts:
- Step 1. Know the payment policy of the other party. This will help you validate if this is acceptable on your part. Usually it is 30 to 60 days, but in some cases it takes as long as 90 days. Negotiate right away if the terms are not acceptable to you and propose a new one.
- Step 2. Request for a deposit. Try to get the other side to make a partial or whole upfront payment. While the percentage varies from industry to industry, you should always try to bring up this matter to help minimize your overhead expenses and ease the stress of having to wait 45 to 60 days for payment.
- Step 3. Put it in writing. Make your agreements formal by drafting a legal contract covering the details of any project. E.g., agreed price, delivery lead time. This will serve as your bible for the duration of such projects.
- Step 4. Offer discounts for early payment. If you really need payment badly, to shore up cash flow, you could offer a small discount to your clients in return for earlier payment. Some customers might agree to pay sooner if they’re getting an enticing percentage discount.
