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The secret recipe for a good business cash flow

A lot of businesses are struggling with cashflow. Most of the time it is due to a lack of follow up on accounts receivable, so money doesn’t come in, while your suppliers on the other side are asking to get paid.

Here are my best tips to keep your business cash flow at its best:

1. Follow up closely with your A/R (Accounts Receivable):

Most of the time, clients take too long to pay their suppliers or service providers. Sometimes they are too busy and they forget, but sometimes, they are also struggling with their own cashflow. People are also paying the suppliers that charge interest first to avoid paying more, then they pay all the rest afterwards.

So here is the secret recipe to take care of this.

  • Put terms of payment on your invoices that include an interest rate if not paid by the deadline. Ex: 2% interest on unpaid balance after 30 days.

  • Then close to the 30 days, if you haven’t received a payment send a friendly reminder that their invoice is due soon and you haven’t received a payment yet. Let them also know that interest charges will start accruing at 30 days (which will encourage them to pay very soon).

  • At 45 days send a statement including interest charges. You will see that if your client hasn’t paid yet, the cheque will come in the mail in no time. It’s a fact, people don’t like to pay interest, so they always clear invoices from vendors who charge interest first.

2. Take your time paying your A/P (Accounts Payable):

  • Pay your bills only at 30 days or on due date. If you pay too quickly, you are giving away money that could be useful between the time you pay and the due date.

  • If you have an account with a supplier and they accept credit cards, pay with a credit card at 29-30 days, this gives you extra time (21-45 days) to pay the credit card bill on the due date.

If you follow these tricks properly, you will see a huge improvement on your cashflow. It will train your clients to pay you quickly and on time, avoiding you to struggle with money!

Hope you’ll add this to your routine and that you will enjoy the results.

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