Managing Cash Flow In Uncertain Times Part 2: Accounts Receivable

Managing Cash Flow In Uncertain Times Part 2: Accounts Receivable

Managing Cash Flow In Uncertain Times – Part 2: AR (Get Paid Sooner)

Are you asking how long you can sustain your business under current conditions? There’s no question that it’s uncertain when things will return to normal (or some new version of “normal”).  One of the biggest issues when it comes to sustainability is cash flow. This blog series outlines how to analyze and improve your business cash flow, even during uncertain times. In part 2 below, we dive into steps you can take to improve cash flow.

Part 1: Cash Flow Analysis
Part 2: Accounts Receivable
Part 3: Accounts Payable

Once you have provided your goods or services to your customer, it is time to get paid. It can be devastating for a business and detrimental to your cash flow to let an aging account receivable (A/R) sit unnoticed. Here are some tips to help you get paid faster.

Make sure you are sending your invoices early and often! Get the invoice in your customer’s hands as soon as possible. That personal interaction with customers often leads to faster payments. And don’t be shy about sending reminders for payments. Many accounting systems allow for quick invoice generation and the ability to send automatic payment reminders. I personally prefer Xero for accounting software. You can use the reminder as an opportunity to share a helpful tip or thank your customer once again for their business.

Spend extra effort collecting on past due accounts. The longer an invoice goes unpaid, the less likely you are to ever receive a payment. So, don’t let them get too old. In addition to setting automatic reminders through your accounting system for any unpaid invoice, you can also reach out personally to ask the customer if there’s anything you can do to help them complete the payment. 

Make it easy for customers to pay you. The easier it is to make a payment, the sooner it will happen. Offering more options for your customers will lead to quicker payments.

  • Online payments are an easy and convenient way for anyone to send a payment to you. There are many third-party service providers that will manage payments for you directly from your website or through an online payment portal. Some popular online payment providers are Stripe or Square.
  • Mobile payments are becoming the quickest and most efficient way to get paid as smartphone use increases. Apps like Paypal or Venmo will enable speedy customer payments.
  • Automated payments are ideal if you are providing a monthly service to your customers. Give them the option to set up automated recurring payments. Once you send the invoice out, the credit card or bank account on file is immediately charged. This is one of the best ways to make it easier for your customers and make sure you are paid immediately every time. Your bank may be able to run a monthly ACH (short for Automated Clearing House) for automatic payments. Otherwise, there’s software available to facilitate automated payments, which vary based on your industry. 

Require deposits or incentivize pre-payments. Depending on what kind of business model you have or the type of service you provide, deposits and prepayments may be an excellent way to increase cash flow. Deposits should definitely be required if you need to order custom items to fulfill an order. Partial or full payment up-front will also reduce the likelihood that a customer backs out of their order or chooses a different service provider. Think of a deposit for a tattoo or a retainer for a lawyer. As a customer, how likely would you be to keep shopping around once you’ve begun paying a certain provider? You can also offer a discount or something special to customers who prepay. Trying out a new virtual fitness class online? Offer a discount to the people who pay upfront for the first 10 classes. Releasing new beers at your brewery? Create a Beer Enthusiast club with a bumper sticker, t-shirt, or honorary spot on a wall of honor to those who join and prepay for growlers. Get creative in your incentives and don’t be afraid to try something new. 

Allow pre-orders. Adding the option of pre-orders to clients can really improve your cash situation. A pre-order is when you take an order and bill your customer in advance of providing the goods or services. An excellent example of this was Tesla when they were running into cash flow issues they allowed pre-orders for their Model 3 vehicle. This allowed them to ramp up production and keep the company running. They took the payment upfront and delivered the vehicles at a later date. Think of it as upcoming guaranteed sales. This advanced payment gives you the flexibility to make sure your vendors are paid and help streamline your process of delivering to your client.

When trying to get paid quicker, you should put yourself in your customers’ shoes. Whatever is easiest for them will make them much more likely to pay you fast. Keep this in mind when sending out an invoice. A smaller A/R equates to a better cash balance and a healthier business.

Check out our COVID-19 resource page for more blog posts, videos and helpful information for businesses during the Coronavirus pandemic.

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