Sometimes you might find yourself short on cash when you need it and have plenty available when there are no bills to pay. You can move things around to smooth out uneven cash flow as explained in this Entrepreneur article. In the article, author Scott Gerber tells about his company's struggle with low cash flow two times a year. He figures out part of the problem is that clients have up to 60 days to pay their invoices.
Rather than solving the problem on his own, he empowered his employees to look for solutions to balance his company's cash flow through the year.
Here are the six changes his company made to even out the cash flow as well as my comments.
- "Adjust customer-credit and payment terms." Gerber uses different down payment amounts, which depend on whether the customer is current or new. Some projects took longer than others, so Gerber adjusted for that, too. Look into changing your payment deadline to give customers less time to pay. Instead of 60 or 90 days, make it 30 or 45 days.
- "Offer discounts for early payers." Another option is to charge a penalty fee for late payments. Unfortunately, that won't help get cash faster like discounts for early payments. You could offer both options.
- "Establish 'milestone payments' for longer projects." Businesses that provide services rather than products can benefit from this approach.
- "Create new revenue streams by expanding the existing service packages." Gerber's company is clever in adding a service that fits the work his company does. They're not a storage provider, but they're already storing the media they produce for clients. So why not extend the service? You may have a product or service that's a natural extension to what you already do for customers. What about asking your customers what they want?
- "Retain control of the final product until it's paid for." For service providers, this is a difficult option unless you build or repair equipment. In this case, keep the product until you receive payment. This is where milestone payments described in #3 can help if there's no end product to hold. You could also withhold future services until payment especially if your business provides continuous services with no end.
- "Renegotiate vendor and freelancer contracts." It can be an inconvenience having to make a change or lead to service interruptions, but it may mean big savings. Also, check your credit cards' bill cycle. Credit card companies can change your billing cycle so your due date is a different time of the month.
If you're unsure of when you're typically low on cash flow, work with an accountant or bookkeeper to put together a cash flow statement. This blog post gives you more ideas on how to find more cash without adding new customers.
How do you balance your cash flow?
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