Cashflow is king

Five ways technology can help you keep the money flowing into your small business.

Protecting your cashflow is vital in a small business, and the easiest way to achieve this is to ensure cash keeps flowing in without impediment. As US venture capital markets pioneer Fred Adler says in his famous epigram, ”Happiness is a positive cashflow”.

One of the attributes of a successful business, according to Adler, was having cash where and when you need it.

Here are five tips for keeping the cash flowing into your business:

  1. Accept credit cards

Have you ever gone shopping with a list and just cash? I bet you came home with only the things on the list and probably some change. Compare that to going shopping without a list or cash and just a credit card. What did you spend then?

What does this tell you about the power of credit cards? There is no doubt you will make more sales if your business accepts card payments. While the use of cash and cheques is declining, card payments are inversely increasing.

If your business does not accept cards, including credit cards, you will start missing out on sales. People spend around 15 per cent more when using credit cards. If you sell online, it is almost a prerequisite to accept credit cards.

Remember,

  • credit cards are convenient for your customers
  • people want convenience and seek out businesses that accept credit cards
  • accepting credit cards adds legitimacy to your business
  • receiving card payments means you get paid faster
  • fees are not a concern – you will make more sales accepting credit cards.
  1. Send a letter of engagement

How many times have you felt a little apprehensive before sending a client an invoice? You’ve been scared of their reaction, nervous that their value of your product or service may not align with the invoice. Like most problems in life, this is usually a communication problem.

If you are a service provider, before starting work with a client it is a good idea to send a letter of engagement, and ask them to sign and return it. Better still, sit with them and go through it together.

The engagement letter should outline the purpose, scope and output of the work, the fees and when invoices will be sent and need to be paid. When a client needs to overtly do something, they become very aware of their obligations and usually there is never any further discussion about invoices.

It is a little easier when you sell a product as the customer knows what it will cost before purchase.

  1. Set up direct debits

Some businesses, such as gyms, which provide regular ongoing goods or services, can set up direct-debit payment arrangements with their clients. If your customers pay via direct debit, you avoid the following tasks:

  • you don’t need to send out weekly or monthly invoices
  • there is no need to send reminder notices
  • no-one pays late

Of course, that is in a perfect world. But with technology and direct debit, you almost do have a perfect world. Your accounting system should be able to send automated invoices and receipts, and for direct debits an automated text message can be sent to remind your clients that their payment will be coming out of their account on a certain date.

Most banks can provide you with the ability to set up a direct debit for customers, and other providers can do this too.

Direct debits also have the advantages of freeing up administrative time, stabilising cashflow and making your customers more loyal and “sticky”.

  1. Make it easy to get paid

I was out and about in my car and thought I’d better get a “filler” for my wife’s birthday present. I thought about a store voucher card, but there was one small problem. As I was standing in the shop looking at the stand of gift cards, I realised I didn’t have any cash on me. It wasn’t a big deal, though, because I have Apple Pay on my phone, so I go up to the counter to pay. However, this store didn’t have Paywave, so I couldn’t buy the card.

What did I do? I jumped in the car and drove up the road to the nearest supermarket and made the purchase there. The original retail outlet lost a sale because it didn’t have the technology I needed to make payment.

You need to give your customers as many alternatives to pay you as possible.

“You need to give your customers as many alternatives to pay you as possible.”

  1. Charge upfront

At Byronvale Advisors, we charge clients upfront when working with them on recovery engagements. Work is not started until at least one day of time is paid for in advance. Why? Well, typically these clients are already behind with their creditors and may be verging on being insolvent.

Being paid upfront means we won’t be waiting past a due date wondering when or if we will be paid. We will not be providing working capital to our client that costs us use of those funds. It also means that if the client declares bankruptcy or goes into administration, we will not be a creditor.

If you are concerned about your customer or client’s ability to pay you, then save yourself a headache and charge upfront.

Stephen Barnes, Principal, Byronvale Advisors

This story first appeared in issue 19 of the Inside Small Business quarterly magazine