Payment is perhaps the most rewarding part of running a small business. And for those small businesses offering anything besides the individual purchase items, this is normally done through invoices. But what about when invoices are paid late? Unfortunately, this is quite common among self-employed business owners. While being paid on time might not seem like a strict necessity every time, it can have a serious impact on cash flow, something which is vital for the successful running of a business.
The Importance of Cash Flow
But what is cash flow, why is it so important, and how does being paid late effect it? fastFACTR, a company offering invoice factoring (particularly useful for cash flow purposes) recommend that you prioritize cash even over total profits. The reason for this is fairly straightforward. Overall profits might well reflect how well your products or services are selling, but if the cash is not there when you need it, then the day to day running of your business will be severely hindered.
We are all aware of the necessity of smooth operations if a business is to succeed. Regardless of how much you are making overall, if you do not have a good cash flow, your business is in trouble. Insufficient cash flow can mean that your business will stagnate (as you need sufficient cash flow to plan for expansion) or it could even mean that your business goes under from being unable to meet financial obligations. Make no mistake about it – cash flow is essential.
So, in order to ensure that your invoice and other payments – which you can think of as incoming cash – are made in a timely fashion, you can defer to the following tips:
If Possible, Invoice in Advance
Getting money earlier – even if you get it earlier than is strictly needed – is in all cases very good for your cash flow. If you can, make the case for upfront payment. Naturally, this relies on certain guarantees that you will deliver the work. If you have a successful business with a proven track record of timely and adequate delivery, then you can perhaps ask customers and clients to pay upfront. If such a system of trust is unfeasible, you can perhaps try a “half now, half later” model. Speak to your clients and see what can be arranged.
Consider Invoice Factoring
The first thing to note about invoice factoring is that, while it can be an excellent solution to temporary cash flow problems, it isn’t really a long-term solution. Securing timely payment is certainly preferable, simply because invoice factoring companies will require some form of payment. However, because invoice factoring is, in effect, getting the money earlier, it can effectively solve payment timing problems.
Following this tip only requires a little diligence, but it makes all the difference. By invoicing as soon as a job is done or an order is made, you have a better chance of immediate payment. This is also something that you can insist upon.
Provide Exhaustive Details
There are several details pertaining to payment besides simply the money that is required. Things like local taxation, the specifics of bank transfers and, of course, the payment terms which you will insist upon. Include all of this in the invoice so the client is not left in need of extra information or has to do some legwork, which will delay your payment.
Timely payment is essential for cash flow, and cash flow is essential for business success. This is, ultimately, what you should keep in mind more than anything else.