Maintaining a business is a challenge, especially in the current economic times. Bad debt, from customers not paying their invoices, creates a ripple effect throughout the business’ suppliers and their suppliers.
Often, members of the account receivable department within companies become sympathetic to the debtor company which is having a hard time paying their bill. In fact the creditor and collection agency are often the target of being the “bad guy” for trying to collect from a business going through a hard time. However when a business is not paid by their customer, it can put the business in trouble, making it difficult to meet payroll and to pay bills; this is especially true for small businesses.
According to the U.S. Small Business Administration (SBA), roughly 50 percent of small businesses fail within their first five years; most from poor credit, too much debt and insufficient capital funds.
Here are the three things you should do as a business to improve your cash flow:
Make Customers Pay
If the majority of your business debt is a result of delinquent customers, you need to review your accounts receivable process. Review our 7 Steps to a Well-Organized Billing System for assistance.
Don’t allow for excuses. Make sure to learn the real reason that the customer refuses to pay. If your internal staff is unsuccessful, always consult with a commercial collection agency expert.
Review your Budget
Prepare a proper budget based on the income and expenditures of your business with your CFO. If needed, cut costs by lowering your expenditures. It may seem like common sense, but if you have significantly more money going out the door then coming in it is time to look at your costs and see which are superfluous.
Common expenditure reduction can be:
- Reducing energy use within the facility to save on bills.
- Providing telecommute options for employees to save on facility space.
- Curbing travel expenses by reviewing the analytics of the success of the conferences attended.
- Optimizing business tax reductions with your CPA.
- Auditing fixed assets to reduce the insurance bills and taxes.
- Reviewing all vendor relationships to ensure best pricing.
- While most companies often think of making business cuts when reviewing a budget, companies should consider increasing their marketing efforts to improve earnings. Here are some basic questions to ask yourself and your marketing team:
- Is your website SEO optimized?
- What efforts are you utilizing to bring in new customers?
- Are you targeting the right audience?
- Is there analytics software in place to track efforts?
In order to improve cash flow, you need to increase revenue and you can’t bring people in the door or to your website without the right tools and strategy in place. By developing a strategic marketing plan, your business can increase its earning potential.
Consolidate/Restructure your Business Loans
By consolidating your business loans into one payment, businesses can often reduce monthly costs that are at a lower interest rate. Always make sure you understand the financing options that your business has and how it will ultimately affect your credit.
Based on your business’s financial situation, you will need to meet with a financial advisor to decide whether to have the loan unsecured or secured with business assets.