5 Steps to Increase Your Cash Position, without having to get new Customers

Cash is King. Make sure it rules!

Image Courtesy of Flickr - Indiewench

We all know, cash flow is the most essential part of running a business, whether it’s a start-up or maintaining an existing one.. This is particularly evident during tougher economic times. As a small business owner, there are several ways in which you can enhance your cash position, without the need to spend more on marketing, advertising, or getting more customers through the door.

Here are 5 ways I’ve managed to increase my cash flow and intake:

1. Control accounts receivable by limiting credit. Do you sell to commercial accounts? How quickly do you collect on these accounts? Two strategies that I find work well include;
   • Offer the special commercial pricing, but with no credit terms. Instead, ask for payments by credit card. We generate a lot of commercial business to small contractors who can’t get credit elsewhere (and therefore don’t feel welcome at those other places).
   • Offering early payment discounts (2%, 10 days, net 30). If payment is not received by day 30, get on the phone to collect.
2. Increase the speed of your cash intake. When you make sales today, when do you get your cash? Can you possibly have your closing manager do a night deposit? How about your credit card processor? Do they deposit your debit and credit card payments with 24 hours? Or do they take two business days? I use Moneris for payments and receive immediate settlement into my account, which is much faster then my previous provider.
3. Ask for extended terms from your vendors. Here’s a rule of thumb, never pay for anything before you sell it. I agree it’s not always possible, but if you could purchase inventory with 60-day terms, then turn around and sell it within 30 days, you’re actually generating money as you grow your business. We do this for many of our large vendors. We have one vendor who provides us with products used in large commercial jobs. Our terms to our customers is 2%, 10 days, net 30. On day 35 we start calling on uncollected bills. We always collect by day 45 or 50 at the latest, making it easy to cover our net 60-day terms we have committed to our vendor.
4. Pay vendors using a credit card. If you have net 30-day terms with a vendor and on day 30, you pay using your corporate visa card, then you essentially gain another 30 days, giving you 60 days. This is an old trick, but it still surprises me how few small business owners do this. It also has added benefit by enabling the business to collect frequent flyer miles or other award programs offered by many credit cards. If you vendors don’t already accept credit card, it’s a good time to ask them to start!
5. Pay using a post-dated cheque. If you are in a real pinch and need to buy yourself 10 to 20 days, most vendors are happy to receive a phone call from you explaining that you want to pay them and are going to be sending them a post-dated cheque to cover your invoices. I have always found that companies are willing to work with you, as long as you are up front and honest with them. And the best way to demonstrate that you have full intentions to pay your invoice, but can’t right now is to send them a post-dated cheque.

Bonus Tip: Create smaller, more frequent payments for customers at risk of defaulting. If you’re having a tough time collecting money from a client, offer that they pay you using post-dated cheques. We had one client (to remain nameless) who racked up almost $6,000 in receivables and could not pay us! Instead of making them face a $6,000 to be paid all at once, we settled with them by asking for several smaller post-dated cheques. The cheques were dated over eight months, but we did receive them and we eventually got the account paid down. Now we kept a happy client who purchases from us quite frequently, now paying by visa each time.

Here are a few of my tips and tricks to conserving cash. This is something that every entrepreneur and small business owner has to face from time to time.

I’d like to hear from you. Do you have any strategies that work? Share your comments so that we can all learn from each other.

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