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3 Easy Steps to Dramatically Improve the Cash Flow in Your Small Business

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3 Easy Steps to Dramatically Improve the Cash Flow in Your Small Business

This article follows on from Debra Anderson’s Smallville article ‘3 Quick Things You Can Do Today to Boost Your Cashflow’.  The key points Debra highlighted were invoicing your customers promptly, making it easy for them to pay you and following up with them until you’re paid. These steps are crucial Small Business accounting and can be easily automated with the help of cloud accounting software like Xero.

Follow these simple steps and save yourself hours spent on accounting tasks:

Add a ‘Pay Now’ button to your invoice and get paid faster.

You want to make it as easy as possible for your customers to pay you. Imagine a customer opening your invoice, clicking a ‘Pay Now’ button on the invoice and then being taking to a payment screen.  Here they can enter their credit card details into a secure payment service and pay you immediately.

This is now a reality!  No more opening your invoice and then putting it to one side and forgetting to pay it. Customers can pay you immediately after they open the invoice.

Here’s what you need:

  1. Xero cloud accounting software.
  2. A payment service like Paypal and Stripe which enable your customers to pay securely by credit card.
  3. One you have a Xero account and a payment service you can activate the ‘Pay Now’ option in less than 10 minutes.

Send invoice reminders automatically.

Even with the ‘Pay Now’ option, you may still have customers who aren’t paying on time. In this situation I usually see business owners spending a lot of time chasing up customers or even worse not getting paid.

As Debra mentioned ‘‘the squeaky wheel gets the oil’.  If customers know you will be contacting them as soon as they are late to pay, they’ll usually prioritise paying you over someone who isn’t chasing them up.

Using software like Xero you can email out an invoice to your customer and see what date they opened it.  Not only that you can also setup automated reminder emails to go out if payment isn’t received by a particular date.

For example:

  • – 1 day late: friendly email reminder template
  • – 7 days late: 2nd reminder email template
  • – 14 days late: phone call

If you’ve sent automated email reminders and haven’t heard back, don’t stop there. Make sure to follow-up with a phone call.  Having a documented process to follow-up debtors will help with this

Next steps:

  1. Activate ‘automated invoice reminders in Xero’
  2. Check the template emails and adjust to suit your business
  3. Ensure that you have correct email addresses for your customers

Charge a fixed monthly fee paid by Direct Debit.

Have you noticed a shift in companies selling their product / service as a subscription rather than a one off purchase?  Years ago you would purchase a Microsoft Office CD, these days it is sold as a recurring annual subscription.

The advantage of selling on a subscription basis is that there is an ongoing relationship (and ongoing sales), rather than a one-off.  The other advantage is that once a customer is on a direct debit, you have significantly reduced your risk of not being paid.

Is there a product / service in your business where you can do the same?  It is amazing how many businesses are introducing fixed monthly fees.

Here are some examples:

  • – Unlimited Graphic Design: Brandstrong
  • – Unlimited Small WordPress fixes: WP Curve
  • – Bookkeeping and unlimited support: Bean Ninjas
  • – Unlimited small Shopify updates: Carson

Tools required:

  1. A Payment Service like Stripe / Paypal or Ezidebit to handle the direct debit.
  2. Accounting software like Xero for an automated recurring invoice.

Bonus tips to improve cash-flow.

Why offer 30 days credit when you could offer 1 week?

If you invoice based on milestones, can you adjust the percentages?  Rather than taking 50% in advance and 50% upon completion, what about 30% deposit, 50% once you achieve a certain milestone and 20% upon completion.

Another option is to take payment at the Point of Sale.  My mobile mechanic turned up with a portable EFPTOS machine the other day, and I was able to pay him on the spot.

Sometimes industry standards will impact your ability to change payment terms.  If so, it’s time to be creative!  What can you do to increase your ability to get paid faster, without impacting sales? Cash-flow is such a critical element to the success of a business.

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