Cash flow is one of the major stumbling blocks for new businesses. You’ve made the sales, but the money just isn’t flowing in, and without the money, it’s nearly impossible to run the business. Here at MoneyTowers.com, we have put together a small guide of four things you can do to help improve your cash flow today.

1. Factoring
Factoring services are a quick way of getting money through the door – fast. The basic principle is that you sell the debt (ie the unpaid invoices) on to another company who pay you a percentage of the debt you are owed.

The good thing about factoring services are that you get the money quickly – sometimes within 24 hours – and you can release most of the money you are owed. Without having to chase the invoices, you also save time and money. Many factoring companies also allow you to trial their services so you are not tied in to factoring forever.

However, there is a fee associated with using a factoring service and you won’t get all the money owed on the invoices – this can mean that you lose money if you don’t have high margins on your products or services.

2. Do your customer research
This option is actually prevention rather than just a cure – do your research on your new customers before you offer them products or services. If you are worried about their solvency or reliability, ask them to pay up front. Check out their credit-worthiness online through a credit reporting agency before you offer them credit facilities. Remember that you can always ask companies to pay some of your fees up front, and some of the fee after your service or product has been delivered.

The only problem with this option is that not everyone has the luxury of picking and choosing their customers – when you first start your business, you quite often don’t want to turn away customers until you have built up a base of customers and a good reputation. Also, just because the company has a good credit rating does not mean they will pay you on time!

3. Early bird incentives
Incentivise your customers to pay you early – add a clause to your contract that states if you receive the invoice money within 7 days of the invoice date, the customer is entitled to 5% off the total value of the invoice, and it payment is received after the 7 day period, full payment is required. This will encourage customers to pay you early, meaning your cash flow situation is improved. It also means that you may save time on chasing customers.

However, it will cost you money and you must be careful that you do not make a loss on these early paying customers – imagine if all your customers paid within the 7 day period. Would you business still be profitable?

4. Problem solving
It might sound obvious, but ensure you invoice (and send the invoices out) on time – if you don’t, the customers will not be able to pay you! It is also important to resolve all queries and problems relating to payment as fast as you can – the sooner problems are resolved, the sooner the invoice will be released for payment.

However whilst good customer service is a must for any business, it does not guarantee that you will get paid on time.

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