Without a steady flow of cash to cover expenses, your company can quickly stumble. 

Cash flow troubles can develop even when sales seem strong. Facing a continuous cash crunch makes it difficult to conduct your business properly. And while it may be tempting to seek out fancy financial formulas for predicting and tracking business cash flow, the basics tend to be plain common sense for most small businesses.

The object is to make certain that more cash enters your business than exits your bank account. First you need to translate sales into real money as quickly as possible. Once you’ve collected the cash, your business needs to guard it. Surprises, such as slow or non-paying customers and unexpected expenses, are your worst cash flow enemies.

One way to shift cash your way is to ask for all or a portion of payment up front. Asking for at least a deposit in advance is a great way to jump-start your cash flow. And if you establish the policy fairly and properly, it shouldn’t alienate good customers. 

Accepting credit card payments also can help, so you may want to sign up for a merchant account that allows you to do this. Or, if you already have one, encourage customers to use this option more often. You do pay a fee for this. But credit cards are a great way to speed cash into your account, and the cost is generally small.

You may need to manage “receivables” more closely. This is the money that customers owe to you for products or services you’ve delivered. Create a detailed “aging” schedule of what you are owed, by whom and for how long. Place phone calls to overdue accounts, focusing first on the largest amounts due. Offering a discount can bring some quick cash in the door, but play this card only after you’ve called the customer to ask for full payment.

Finally, don’t overlook the power of an operating budget. Note specific due dates for payables as well as receivables. Although the balance between the two won’t always be predictable, the budget can give you a snapshot of where your business stands in cash flow.

Cash flow is just one critical financial issue facing your small business. To learn more, contact SCORE “Counselors to America’s Small Business.”  SCORE is a nonprofit organization of more than 10,500 volunteer business counselors who provide free, confidential business counseling and training workshops to small business owners.  Call (570) 851.1608 or visit www.scorescranton.org to contact the Greater Scranton Area SCORE Chapter.

The term “receivables” is one that small business owners quickly become familiar. This is money owed to your business. It’s a good thing, since receivables represent sales you have made. But receivables also can become a problem if clients are slow to pay—or worse, if they are not paying at all.

The process of collecting money from customers is a fact of life for many types of small or home-based businesses. But if your receivables are getting out of hand, it might be time to come up with a strategy for improving your collections. There are several things you can do to prevent slow payments before they become a problem, and also to shake some money lose once invoices have aged.

Your aim is to create a step-by-step collections process that starts by making smart credit-granting decisions. And make no mistake: granting credit is exactly what your business is doing whenever you deliver a product or service without first collecting payment.

Customers are more likely to pay quickly if your invoice arrives in a timely fashion and is clear and simple. It should state explicitly, in itemized fashion, what it covers. Make it look clean and professional, and include your company logo. Cute designs may only get in the way.

Design it like a real invoice, not just a piece of paper with “amount due” typed in, and be sure it is clear how the check should be made out and where it should be sent. Including a return envelope can help. Also include a phone number and contact name for questions. Small business accounting programs such as QuickBooks can easily create your invoices. Or a dedicated low-cost software package such as MyInvoices & Estimates for $39.95 from Avanquest can help. Visit www.avanquestusa.com.

Mail your invoices quickly and send a reminder immediately if payment is not received by the stated due date. On long-term projects, consider progress billings.

If you do need to press for collections, send a customized, personal letter, not a lifeless form letter. Remind the debtor of his or her original promise to pay. And ask for immediate and full payment. By all means, get on the phone. Most businesses wait too long to call. But collection experts say a phone call is ten times more effective than writing or e-mailing.

Collections are just one critical financial issue your small business can face. For expert help and advice, contact  SCORE “Counselors to America’s Small Business.”  SCORE is a nonprofit organization of more than 10,500 volunteer business counselors who provide free, confidential business counseling and training workshops to small business owners.  Call (570) 851.1608 or visit www.scorescranton.org to contact the Greater Scranton Area SCORE Chapter.