Cash Flow Basics

4 Things That Affect Your Business’s Cash Flow

1.Accounts receivable

Consider your accounts receivable process. Look at it from all angles. Let’s define accounts receivable to start. These numbers or total numbers are what is owed to you by all your customers or clients. This is money that you need to collect. They are open invoices. In terms of cash flow, consider these questions about accounts receivable. When do you invoice your customers? Right away? Before the job? Or do you take a lot of time to send the invoice for your services? All this timing matters. Do you take a down payment or request to be paid in full? Are customers allowed to take 10, 30, or 45 days to pay the invoice you send them? Ideally, to create more cash flow in your business, invoice the customer/client right away. Don’t wait. Take a down payment if it is a project and have clear deadlines and due dates for the rest that is owed. If it’s a one-and-done invoice with no progress invoicing, collect at the max under 10 days. Don’t give them 30 or 45 days to pay. This will shorten the cycle putting sales money in your pocket faster.

Take a down payment on project work and have clear deadlines and due dates for the rest that is owed.

2. Accounts payable

Next, consider your accounts payable process. Let’s define accounts payable. These are all bills you need to pay to your vendors. This is the money you owe others. When do you pay the bills? When do you enter them in QuickBooks? Do you pay them on time or early? When the bill says you have thirty days to pay, do you pay the bill now or on the thirtieth day? The answer should be on the thirtieth day. Release the money when it is due, not earlier unless you are rewarded with a discount. Consider what bills you have automated on your credit card. Are any of these bills being auto-paid early? Reschedule when bills are auto-paid to be drafted or charged on or right before the due date. Every day matters with cash flow.

By sending invoices that have a “click here to pay” button your customers can pay you within seconds.

3. Invoicing

Are you making it easy for your customers to pay you? If they have to write out a check and place the check in an envelope, stamp the envelope, and mail it to you, you’re wasting precious time. You still have to go to the post office and endorse and deposit the physical check. All of those steps add days and time to getting cash in your bank. By sending invoices that have a “click here to pay” button your customers can pay you within seconds and money that is ACH’ed or charged to their credit card will hit your bank so much faster.

4. Debt

Finally, debt affects cash flow. If a portion of your monthly sales has to pay the principal and interest on debt, that’s cash you could be using to pay payroll or pay regular monthly expenses. Consider consolidating the debt and reducing expenses to get out of debt as quickly as possible. Once you are debt-free your cash will go further and work hard for you. 

We know that financial planning for your small business can feel overwhelming, but it doesn’t have to be. Schedule a complimentary consultation with Amber’s Bookkeeping today!