A successful business is successful because it always has cash coming in, not because it sells a lot, or has a good margin. A (lack of) cashflow causes businesses to fail, or succeed. You’re not working hard for profit, you want CASH. How is your cashflow and do you regularly focus on improving it?
Do work invoice get paid
Good, that was simple. The problems exist where the gaps are in that sentence. Let’s examine the normal problem areas.
How to improve cash flow: Work in progress
Work in progress (or WIP) as it’s often called it is where you’ve started work and not finished it, or invoices that haven’t yet been raised. Maybe a web designer has done the work, but wiated for a month to get the client’s final words for the website, what causes your WIP problems? The longer the invoices sit around, the more likely the client will say “No”, query the amount, or even get stuck in their own cash flow problems!
There are two main issues here:
- Not getting the job signed off quickly. A weekly review of work started and not invoiced will help you focus on getting old jobs completed, before new ones are started. It’s better to finish a job and get paid than start a new job!
- Extras! Did your client as for more than was on the initial quote? This often leads to problems later, get written agreement to proceed beforehand, perhaps invoice the first amount immediately and and invoice the extras as soon possible after.
There’s a mindset prevalent in many business owners, an assumption is that finishing small little bits, has lower priority than doing other chargeable work.
How to improve cash flow: Deposits
Supermarkets don’t generally let customers consume the goods before paying. Why do small businesses? “Because that’s the way it’s always been” isnt’ a good reason. At least take a significant deposit upfront if you’re doing a lot of work.
How to improve cash flow: Debts
You’ve closed the deal, got a good (fair to both partiies of course) price, and you enjoyed doing the work……..then the problem, getting paid.
Customers receive their service, and then they get the bill. A delay in them getting round to paying can cause problems too. Chasing debts makes a lot of difference to your cash flow.
- Outsource the debt chasing, perhaps even “just” a VA. Often the business owner is too close to the problem and too involved withthe client to make that call. An external person can more easily keep a focus and to politely remind the debtor.
- Regular payments: Why not bill monthly (if you have regular work), or with stage payments?
5 ideas to improve cash flow
- WIP: Invoice as soon as job is complete. Don’t fall into the trap of thinking it’s just a couple of extras, many companies do!
- Outstanding debts: Get somebody specific (possibly outside of the firm) to be responsible for chasing, once you’ve given them a clear procedure.
- Monthly payment: Ask clients to pay in instalments (via Direct Debit), cash flow problem goes away.
- Selling in Monthly payments: “If you pay monthly there are no increases in fees this year”
- Visibility: Lastly (perhaps because I’m a coach), I recommend having clearly visible KPIs. Every business I know that implements clear KPIs find it really helpful and it gives appropriate focus.
A lack of cash that makes more businesses fail than a lack of profit. Should you measure the total amount of cash in (paid in, less paid out) each month?