If you own a small service-based business, you’ve probably felt the squeeze of cash flow. It can be incredibly stressful to manage your income and make sure you can cover expenses – and it could even sink your company. In fact, one study found that 82% of businesses that failed cited cash flow problems as a factor in their failure. To help you take control of your cash flow, here’s a look at the best way for small businesses to collect payments, why a payment management system is necessary, and more.
1. Consider the Timing
When many people think of cash flow, they think in terms of income vs. expenses, but this misses one crucial component: timing. Here’s what happens all too often, especially in small businesses. You make enough each month, in theory, to take care of all your bills, but you don’t get the inflow of cash in time to pay those bills when they’re due. So you end up having to pay them late, incurring fees, and constantly feeling behind the ball.
To change this, start by sitting down and writing out the timing of all your bills and expected expenses each month. Even if this fluctuates, just aim to get down what you can. Maybe your main bills are due on the 15th of each month, and you usually make major material purchases the first two weeks of each month too. This could leave you high and dry for the rest of the month, if not managed intentionally. As with most problems, the first step to fixing them is acknowledging them. Once you know the general outflow of cash you can expect each month, you know what you need (and by when) in order to cover it.
2. Define Payment Terms
The beauty of being a business owner is that you can set your own payment terms. If you realize that you have to make a lot of purchases in the first half of the month, then you want to set your terms so that client payments are due prior to the first of the month. Before ever starting work with a client, make sure you’ve communicated these terms (in writing) and that they’ve agreed to them. Some key places to include your payment terms include your proposals, contracts, and invoices.
Also, consider if it would make sense to ask for a deposit upfront, which can help to offset your initial costs and improve cash flow. Deposits may not make sense if you’re in a service business like housekeeping or pool cleaning (most likely). But, they can be really useful for services like major plumbing work or closet renovations, which tend to be longer, more expensive projects and require specific materials. If you do ask for a deposit, it should typically be between 25%-50% of the entire project cost and you should spell out the exact details of what is due and when so your customer knows what to expect.
3. Offer Convenient Ways to Pay
Once you’ve completed a job, get in the habit of sending your invoice immediately. This is because you will already be top of mind with your customer, but it’s also because you won’t hold up payment. Sending invoices through the right payment management system is the best way for small businesses to collect payment since it’s more convenient for you and the customer.
Make sure you’re only using systems that can accept the most popular forms of payment. This includes major credit cards, ACH transfers, and payment processors. The more payment methods you accept, the easier it will be for customers to pay you. By being timely in sending your invoices, and offering convenience, your inflow of cash will naturally improve.
4. Automate Whenever Possible
Finally, remember that your time as a business owner is valuable. Even if you’re not charging for every task you’re handling, every activity you complete has a price tag – including administrative work. So, take some of this off of your plate and automate as much as you can.
For instance, think about how to collect recurring payments or how to collect automatic payments. With the right payment management system, this becomes easy. You can also set your software up to send payment reminders and follow up after a customer misses a payment date. This helps you save time, get paid faster, and take the professionalism of your business up a few notches.
Cash flow is often a thorn in the sides of small businesses, but it doesn’t have to be. You can experience freedom from the stress of poor cash flow by putting these tips into practice and moving on from traditional payment software that isn’t built for small businesses. Try Finli instead, and get the most out of features like simple one-time or recurring billing options, SMS or email-based invoices, and seamless payment acceptance, so you can finally focus on your business rather than chasing payments.
Need help getting started? Finli was founded to help small businesses instantly invoice, collect immediate payments, and more seamlessly handle their accounts receivable. Sign up for a free trial here!