Business owners know that happiness is a positive cash flow!
But, every now and then entrepreneurs are caught in a cash crunch. The long-term solution to this is a detailed examination of every expense, an analysis of pricing and investigating bringing on outside capital. The process takes time and won’t help meet payroll by Friday, or other operational costs. Every business owner knows this drill – drop everything and start dialing for dollars! In a frantic effort to get money into the bank, the owner starts calling customers to coax them to quickly pay their invoices. Since this is an emergency, calls are made to the customers with the best relationships and those most likely to respond to a plea for a quick payment. And while this may be one way to get cash in to meet the immediate expenses, the owner’s best customers are wondering about the strength of the business and the slowest paying customers may have gotten overlooked entirely.
Business owners finding themselves in a cash flow deficit…
…being looking for additional capital to meet these needs, overlooking the fact that they never established a collection policy for delinquent accounts. Following a few easy steps with each invoice issued, the owner will experience timely payments eliminate those desperate cash shortages just before payroll.
The first step is in the details
Even if you are providing service to a company down the block, verify where invoices are to be sent, who needs to be copied, and who approves your invoice for payment. Get the contact information for accounts payable, e-mail and phone numbers. An invoice sent to the wrong address is rarely forwarded. Follow-up on your invoices and get confirmation that the invoice is approved for payment. Also, confirm the customer understands the payment terms on the purchase order, and ask if you can offer a discount for early pay.
You know when your invoice is due…
…have someone from your company call several days before payment is due to verify that the invoice is in line for payment on that day. A little follow through will keep you up to date and help avoid problems that your customer may have with your invoice. The customer will also know that you are on keeping up with your business and that you will be verifying invoices and staying on top of them to pay. This takes time away from promoting your business but is necessary unless you find another solution.
When customers do not accept discounts for quick pay or are just slow, there are other options. One of these is invoice factoring, a simple solution to shortages and immediate cash for your business.
Cash flow is one of the most crucial factors to success in your business…
Funding your business through invoice factoring works like this:
The business owner sells his completed invoices to the factoring company. The factoring company verifies the invoices and funds the business owner with a percentage of the total, usually 85-95%, When the factoring company receives payment on the purchased invoices, they return the balance or “reserve”, less the agreed upon fees. The factoring company will stay up on when the invoices are due and allow you more freedom to promote your business.
The business owner has consistent cash without waiting for his customers to pay, and by using his own assets, does not incur debt for his business as he or she would with a traditional bank loan.
A few simple steps will keep your business on track, your cash available for running your business and peace of mind for you, the business owner.
Call American Receivable today and let us show you how we can give you peace of mind…
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Contact us for a free quote!