Cash Flow Strategies: Tried and True Tips
Jobber integration partner Fundthrough, which provides Invoice Factoring to Canadian businesses, share their tips to increase cash flow in this Jobber Academy guest post.
We’ve all heard the old adage, “Cash is king.” As a small business owner, you know the value of positive cash flow and how important it is to continue to grow. If you’re looking to increase your working capital and take the next big step in your business, consider these tried-and-true tips.
First up, let’s talk Accounts Receivable—the foundation of healthy cash flow.
Ask for Cash Upfront and Create Payment Terms
If this is a larger job, structure your terms in such a way that you receive a deposit for the work immediately. In some industries, asking for cash up front isn’t the standard. Be sure to research or ask colleagues what is generally the accepted set of terms. Fit Small Business has some great tips on invoice terms you can use.
Credit Check New Customers
Knowing is half the battle and understanding the credit score of a new customer could help you prepare special terms for at-risk customers or discounts for exemplary ones.
Equifax has options for both business and personal credit checks in Canada.
Segment your customers based on their payment behavior. Who pays on time and who pays late? Who has 90-day terms and who has 10-day ones? By grouping customers according to their ability and likelihood to pay on time, you can make better decisions about how to handle their business on the next purchase, who requires a discount for better terms, or who is at risk of defaulting altogether.
Reward Early Payment
Reward early payment by discounting invoices for customers who pay within a predetermined time period from the issue date.
The Canada Business Network recommends a 2% reduction if a customer pays within 10 days. It even goes as far as suggesting you raise your prices by 2% to begin with in order to offset the discount, should customers consistently choose to pay early. Read the Canada Business guide on early payments here.
You can reduce or even eliminate the lag between completing a service call and sending an invoice. With Jobber, when you mark a visit as complete, you can choose to send your client an invoice right immediately. Looking to collect payments on the spot? Jobber Payments helps you collect payments in the field.
Have a Plan for Collections
There is a risk that some of your customers may pay late. In fact, 48% of invoices sent by small businesses in Canada and the U.S. are paid late. When you have a plan to act on collecting from late customers, you can reduce the delay in recuperating payment significantly.
Now that you’ve nailed down your Accounts Receivable, it’s time to talk exciting and outside-the-box ways to increase your working capital.
Plan for Seasonality
Many service businesses naturally have ‘seasons’—but even if you’re not in a typical seasonal industry like lawn care or construction, it could be worth analyzing historical cash flows and look for any patterns in highs and lows year over year.
Anticipating changes in cash flow allows you to plan for borrowing, rearrange schedules and hire temporary staff, or reduce costs during slow periods for example.
Add Adjacent or Over-the-Top Products and Services
You’re a trusted business owner in your company’s space. Consider the other services you could integrate into your existing offering to increase cash flow from individual customers. Business strategists call this finding your adjacent ideas.
Think about how adjacent ideas could apply to your business: a lawn care service company offers a selection of fertilizers delivered monthly or a window washing company could also offer gutter cleanings.
Consider Longevity with a Subscription Program
Loyal, repeat customers are in a good position to try a subscription program.
A subscription implies a contract to offer continued or repeat service. For some industries this is a natural fit:
- Landscaping and lawn care
- Cleaning services
- HVAC maintenance
Consider Your Equipment and Space
If you still have some of your ‘vintage’ gear for small-scale production, consider selling it. It’s never been easier through online classified sites.
Another option is freeing up income that’s invested in your everyday workplace. Consider downsizing, relocating, or sharing your workspace to reduce rent expenditures—and probably some clutter, too.
Inventory management factors into this as well—a smaller space might mean reduced stock on hand for products that stay on the shelf longer.
Buy in Bulk
Many suppliers will offer a rate discount when buying items in larger quantity. It can be a no-brainer decision sometimes: compare the dollar-value discount received on bulk purchases with the cost of capital used to purchase those supplies.
If you do have enough facility to store supplies at low cost, it’s worthwhile to ask your supplier for their discount rates. Bulk buying is often a win-win for both buyer and supplier; it doesn’t have to be a difficult question to ask.
One of the barriers to buying in bulk, of course, is not having the capital on-hand to purchase bigger orders. Funding invoices from paying customers allows you to have that future capital available immediately for expenses and purchases.
Raise Your Rates
Is it time to increase your rate or markup? Be sure your rates are inline with industry standards, cover your overhead, and give you a healthy profit margin.
We’ve discussed increasing rates for general contractors and uncovered some helpful topics.