Avoiding the Cash Crunch

How to Avoid a Cash Crunch

businessman in a cash crunchBusiness owners know that happiness means knowing how to avoid a cash crunch. However, every now and then entrepreneurs find themselves in the middle of a cash flow crisis.  The Long-term solution to this cash crunch is a detailed examination of every expense, an analysis of pricing and investigating bringing In outside capital.

The problem is this takes time and will not bring in cash to make payroll by Friday.  Every small business owner knows the drill – stop everything and start dialing for dollars!  In a frantic effort to avoid a cash crunch and get money to cover payroll and expenses, the owner calls customers to encourage them to pay their bill quickly.  In this emergency situation, the customers with the best business relationships and are most likely to respond to a plea for quick payment are called upon first. 

Due to the fact that the entrepreneur is a force of nature, cash will come rolling in and immediate expenses will be met – this time.  This will also make these “best” customers wonder about the strength of the business and the slower paying customers may be overlooked entirely.

Many owners look for additional capital to meet cash flow needs in the absence of a collection policy.  Following a few steps with each invoice issued, the owner will establish more timely payment standards and avoid desperate cash shortages at the last hour.

Details are the first step to faster payment from customers.  Whether you provide services to a company down the street or across the state, verify where invoices are to be emailed, a contact list for the email and the name and number of the person with final approval for the invoice.  Always ask for accounts receivable names, numbers and email addresses. Emails sent to the incorrect email address or wrong contact will no likely be forwarded.  Request read receipts from your email so there is no question it was received.  Call and get confirmation that the invoice has been approved for final payment.  And, understand the payment terms on the purchase order and offer a discount for early payment.

Next, follow up.  You know when your invoice is due for payment.   Call and verify the invoice is approved and in line for payment on time.  If there is a delay, you will be aware of it and can take steps to find out why and avoid conflicts if your customer delays payment.

Details and follow up will help you avoid a cash crunch and will make you a happy (and successful) business owner.

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