I like the expression "there is more month left at the end of my money" because it is so descriptive and probably many of us have experienced it at one time or another. While its descriptiveness amuses me, what it describes is not funny at all.
Employees and business owners alike can suffer from the dread and hardship of running low on cash flow before the next pay cheque or customer payments come through. How can business owners avoid it?
One tip I received from my business coach earlier this year, is to spread client invoicing throughout the month. Instead of billing all my clients at the end or the beginning of the calendar month, he suggests doing it twice a month or even more often. This means that money flows in at different times throughout the month, refreshing my account when I have already started spending some of the money. I am currently testing how well this works in practise.
Whether multiple monthly billing dates would work for you or not, here are five tips on improving your cash flow:
- Submit Invoices On Time. It seems a no-brainer that you would want to submit your invoices pronto. Yet, I hear many an example from fellow business owners who have a lackadaisical approach to requesting, i.e. invoicing their customers, the money they deserve for their work.
TIP: Set a recurring reminder in your calendar to send out your invoices consistently. If you find your current invoicing system of updating a Word document template too tiresome, then shorten your time spent by using an online software like Wave Accounting (free, and Canadian-owned), Freshbooks, or QuickBooks online. Once your template is set up, you can easily duplicate previous invoices and simply update dates and amounts due.
- Remind Clients Of Overdue Payments. Sending your invoices on time does not necessarily equate to getting paid in a timely fashion. There will always be some late payers or even delinquents yet, overall, I have found my clients’ late payments mostly to be due to being busy and simply forgetting to process payment.
TIP: Track payments. A friendly reminder is often all it takes. Do not feel guilty about sending a reminder for overdue payments – you deserve to get paid for your work! Using an accounting/invoicing software, as mentioned above, allows you to automate many processes, and easily send an e-mail reminder at the click of your mouse. Do state on your invoices that overdue payments will be charged a penalty, and be sure you stick to it.
- Change Your Billing Habits. If you are a service provider, you may be billing hourly, on a monthly retainer, or project-based, and therefore invoicing either monthly or after completion of a project. The latter can hurt your cash flow when a project lasts several months.
TIP: Ensure that you get a pre-payment of some kind at the start of your work, and perhaps ask for monthly payments if the project lasts longer.
- Know Your Numbers. Do you always remember which invoices have been paid, or might still be overdue? Know your numbers!
TIP: In the same way that you set yourself reminders to submit invoices, make it a habit to look at your cash flow at least once a month, if not more often. Maybe weekly. Knowing which payments will be coming in (or not!) can be comforting or serve as a necessary kick in the pants to push for more clients or sales. It may also help you identify whether a change in your billing frequency is needed. Being fully aware of when funds are due to come in allows you to plan better for business expenses, like that new laptop you know you need, or a seminar you want to attend.
- Evaluate Your Pricing. Maybe it is time to raise your prices; are you short-selling the great work you do, or under-pricing the fabulous products you sell?
TIP: Review how long you have had your current pricing, and plan for a small increase. Also see if your service contracts could include a minimum length of engagement and/or minimum monthly hours or fee, so you can extend the duration of your client relationships. Once clients have got used to a service provider and are happy with what they are getting, they do not like switching to someone else!
I would add that if you want YOUR clients to pay you promptly and have good payment habits, then you do well to be punctual yourself too. Pay your suppliers on time, and always complete your work when you said you would, then it is a lot easier to expect and ask for your clients to be punctual with payments too.
When you observe good money practises, your customers are more likely to do so too; what goes around comes around!