Money is the lifeblood of any company. As humans need air in order to breath and food to eat, your company requires customers that provides the primary element that keeps a business in business: cash.
But in the real world, businesses that invoice their customers for payment may face a challenge in getting compensated, especially when the customer may be another company or a government agency. Somehow the particular terms “NET 15, NET thirty or DUE UPON RECEIPT” seem to go unnoticed by the customer as well as the invoice doesn’t get paid until 60 to 90 days after the work has been performed. In other cases, the invoice might be paid after 120 days — if not paid at all. For the seller, this can be the start of cash-flow challenges, which can rapidly escalate into a crisis.
Within spending over 10 years working to assist turn around financially troubled businesses, I have discovered that the key to better cash-flow is to ensure that the business implements a system to obtain their receivables paid quicker and faster, with less pain for your customer.
Here are eight ways to start improving a company’s cash-flow today:
1 . Give a Discount for Paying out the Invoice Before the Due Date: Provide an additional percentage off or maybe a fixed dollar amount off of the total invoice if they pay within 5 times of the invoice date. This strategy works well because it provides a win-win situation for you and your customer. If they pay before the due date, they will save some more money and you will be paid a lot faster. If they tend not to take advantage of your generous offer, they are responsible for the balance owned. It also helps keep good customers because you have offered an incentive for them to continue to do business with you.
2 . Have an Internal Collections Program In Place: More often than not, a small business will concentrate so much on acquiring the client plus performing the work that it doesn’t dedicate as much time and effort to collect payment. Make sure you send your invoices out instantly upon completion of your work or shipping of your product. If you have the sources, have your staff send a genial email reminder or make a telephone call ten days before the due date (if it’s a Net 30 or more term) to the customer reminding them to make transaction.
3. Accept Credit Cards: One of the simplest ways to increase cash-flow is to acknowledge credit cards. Once the charges are made, the cash is transferred to your account, usually right at the end of the business day, or in some cases, immediately. Studies have shown that people and companies will spend more using a credit card compared to they will with cash. Offer your customers the ability to pay their invoices through credit card and your sales will increase. Because there are thousands of credit card processors in the United States, you might be in a position to compare and negotiate digesting rates and equipment rental charges.
4. Accept Checks By Phone, Fax and the Web: This is a very easy way to have your customers pay, with little hassle. There is inexpensive commercial software available for purchase which will allow you to produce a check from your printer, based upon the that your customer faxed to you, or even gave to you over the phone. Also, there are online services available which will allow your client to “write” a check over the internet, email it to you and then you can print it and deposit it to your bank account. This really is especially a great tool to use to enhance cash-flow because while it reduces the particular wait time for receiving transaction, it also reduces the time for the financial institution to clear the payment if it is drawn on a non-location bank.
5. Think about Accounts Receivable Financing/Factoring: The process is simple: when a company sells a presently due invoice from a credit-worthy company customer to a third party (The Factor) in exchange for getting that money nowadays. The factor advances a certain portion of the total amount of the bill and holds a percentage in book. When the customer pays the invoice, the factor releases the reserve, less the agreed upon fee (discount rate). With factoring, your company’s credit is not evaluated — your own customer’s credit is.
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Factoring can be utilized as temporary or alternative funding for many businesses. Traditionally, manufacturing companies used this form of financing but today factoring is available to many other companies ranging from construction, import/export, distribution — even companies that provide services to authorities entities.
6. Consider Purchase Order Funding: If your businesses provides solutions to other companies that require purchase purchases, you can secure short term funding to be used to finance the purchase or manufacture of specific goods which have been pre-sold by you to your credit-worthy customer. This type of funding entails giving letters of credit or offering funds that allow clients to obtain the inventory they need to fulfill consumer orders. This frees up existing cash that your business has on-hand for other use.
7. Possess a Referral System: Word of mouth marketing is the most effective and cost-effective way for a business to obtain new clients. People like to do business along with those they like and rely on; the same is true for businesses. You must have a referral system in place along with your existing customers, business partners as well as your employees to help them to relate you business. A great book that will show you how to develop a word-of-mouth based marketing and referral system about this will be the World’s Best Known Marketing Secret simply by Ivan Misner, Ph. D., who will be also the CEO and Originator of BNI (Business Network Int’l), the world’s largest business networking and referral organization.
8. Develop a Rewards Program: Almost every major business – from supermarkets to office supply stores to credit cards- has a rewards program. Some provides discounts to its customers by means of a credit towards a future purchase, or special product incentives (i. e. buy one get one free) or in some cases even cash-back. You can develop your own rewards program as a way to retain and reward customers who pay their bills on time or ahead of time. The cost is minimal to your organization and results in future, higher worth purchases with an increased frequency, plus customer loyalty. You can also implement a rewards program as part of your referral system.