Cash flow is vital for any business. If you don’t have enough cash coming into your business, you could find yourself unable to pay suppliers, or, more importantly, short of the financial resources necessary to invest back into the business and expand. Protect your cash flow by using these three ways to speed up cash collections.
1. Optimize Your Billing Policy
Every business needs a formal policy for billing and collections. Set up a formal billing system in your organization that ensures bills are sent out on time. Use a standard format for your bills that encourages people to pay on time and in full. Make sure every bill contains all the details the customer needs to make the payment, as well as a deadline for payment.
2. Monitor Your Receivables
It’s vital for any business to know how much cash is coming in on a daily or weekly basis. Put a system in place that keeps track of payments received, as well as tracking which bills are still outstanding. By tracking your cash collections in this way, you can identify which accounts are causing the biggest problems with cash flow in your organization, which means that you can then focus your efforts on those collections.
3. Follow Up Unpaid Invoices
When customers don’t pay their bills on time, you need to follow up with them. Begin by sending a friendly reminder that the bill is still due, along with details of how the customer can make the payment. In many cases, this reminder will do the trick, but with some customers you will need to take a tougher approach. Consider imposing late payment penalties on customers who miss payment deadlines to compensate for the damage that disrupted cash flow can do to your business. Alternatively, you could try offering a small discount for customers who pay within a few days of the invoice. This positive approach encourages customers to deal with invoices as soon as they receive them.
Cash flow is the lifeblood of any business, so don’t let yours dry up. Follow these tips to speed up cash collections and cut down on the number of bills that go unpaid.