|| For Freelancers & Entrepreneurs |
Cash flow is the one aspect of a business that keeps it in operation. It is an indicator of customer acceptance as well as the business' potential for growth. For most businesses, cash flow is a function of billing and collection. The more efficient collections is, the more cash is being infused into the business to fuel its operations and help build the infrastructure for growth.
If a company's collections department is somehow handicapped, everything else suffers. In fact, an inefficient collections system is a sure way of gnawing at company revenues that can cause the company to plummet irretrievably in the long run. Based on data garnered by the US Small Businesses Administration, around 70 percent to 80 percent of small businesses close each year, with cash flow issues as one of the most cited reasons for closure. To keep a business afloat and competitive, ample cash inflow must be ensured. If you manage or own a business, here are four ways of improving your collections practices.
1. Establish a viable credit and risk management policy that should be strictly applied to all your customers. Identify and manage potentially delinquent accounts to reduce risks of defaults.
2. Use creative ways of collecting receivables over the short term and long term scenarios. Be familiar with legal ways of recovering bad debts.
3. Implement clear and concise billing forms. This will help customers easily understand how much they owe and the value they have received. Questionable billing items often lead to resentment and clarifications, and delays in payment. Send an invoice immediately each time a job has been finished.
4. Be cordial--cheerful, if possible--and very persistent. Most people become impatient and irritable when billed and keeping a positive, cordial demeanor makes customers more susceptible to settle their bills promptly.
Following these fundamental cash flow tips can help you steer your business clear of the common financial pitfalls many startups experience. Remember, you deliver value to your customers for which you deserve an appropriate increment in your collectibles. However, actually reining in revenues is hardly automatic. That's what a diligently managed collections system is for.
