Cash flow is the center of any business. When the flow of money stops, the company stops. It requires constant attention and we have 4 tips for improving your cash flow.
Tip 1: send invoices faster
A customer does not pay until there is an invoice. Step 1 in improving cash flow is therefore sending invoices faster. Make sure customers have their invoice on the day of delivery. This means that you send invoices by e-mail. This saves you at least a day compared to paper invoices.
Tip 2: better credit management for better cash flow
Not every customer pays within the set payment term. That is consciously, accidentally or perhaps because of a lack of money. You overcome this with good collections management. This ensures that you are on top of the outstanding invoices.
Immediately after an invoice is due, you contact the customer. This can be in the form of a reminder, a phone call or another channel. The best way differs per organisation and customer. When you have many invoices of € 100, a reminder by email fits best. If it concerns one of your most important customers, a phone call might be better.
With collections management you monitor the agreements with customers for the payment of invoices. When you act upon these terms in the form of sending reminders and reminders, the customer will also act faster. You therefore strictly follow the deadlines set by you. If you state in a reminder that a payment must be made within seven days, you will take action on the eighth day if you did not receive the payment. It is signal that it is important. And, it is important for the business and cash flow.
Tip 3: resolve complaints
Complaints and disputes are a common reason for non-payment of an invoice. As a result, they have a negative impact on your cash flow. A solid process for handling complaints ensures that customers pay invoices earlier.
You register every dispute and appoint someone who is responsible for handling it. For example an account manager. Just like with collections management, you also make agreements about terms for resolving issue.
Tip 4: know your customer
Before granting credit, a bank wants to know who you are and whether you can repay the loan. As a company, you also provide a form of credit to customers who pay on account. When that customer is ultimately unable to pay, there is a gap in your cash flow.
You want to keep the risk of non-payment as small as possible. With each new customer, you therefore check with which entity you do business and what the creditworthiness is. The level of investigation depends on the potential risk. If it is a € 100 deal, you do a limited check or skip it. At € 2,500 you check with an information provider such as Creditsafe. They offer concise information about the identity and creditworthiness of companies. With a € 500,000 contract, you want to know more and you might perform a personal investigation.
Risk management is often underestimated and complex. Read what you need to know about credit risk management.
Bonus tip: software
All the above stands or falls with the execution. This must be consistent, even when it is busy or when an employee is sick. You achieve this with automation. Software can support or take over most of these tasks. This guarantees continuity and reduces the costs of improving cash flow.
Find out how our credit management software supports these processes.