It is challenging managing a business during normal times, but when the economy turns, it adds to the chaos. Since this pandemic has hit the World, our sense of normal has clearly changed. As a result, we need to either adapt, or our businesses will fail to exist. As we adjust to this new normal, these strategies we learn today in place even during the upturn in the economy.
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I will share the one change that I did that has been the best change that I could have made. So, stay tuned until the end to find out that change.
Change Your Business Invoices
One of the challenges that I have running my business is getting clients and vendors to promptly pay my invoices. Typically, my clients and vendors only paid their bills at the end of the month. So, if I invoiced at the beginning of the month, the clients would schedule the invoice’s payment at the end of the month. As a result, I would be waiting 30 to 45 days for the payment of the invoice. In a lot of industries, this is considered a normal industry practice. I, however, did not want to wait 45 days for payment. After all, I have my own bills to pay. This was especially important for me when I was starting, and my cashflow was limited.
Changes to Your Contracts
To resolve this dilemma, I needed to change the contract that I had clients sign. So, I changed the payment terms. I now require a 50% payment of my services before work being performed. I also changed the payment terms on invoices so that payment is due one business day after receiving the invoice.
Another change that I made is to bill my clients immediately after completion of the services. This way, the invoice gets to the clients as soon as possible. As a result, this has reduced my payment wait time tremendously.
Always Have a Business Contract.
One of the first lessons that I learned was always to have a signed contract. That way, it limits any chances for any misunderstanding. My clients know that they must pay me 50% upfront. Now I do have some clients that are still under the old contracts. For these clients, I bill the same way except that I do not require any upfront payments. I either bill monthly or upon project completion.
Another change to the contract that I made was to put in a clause regarding late fees. I added late fees for any outstanding invoice that has not been paid within 30 days. So far, I have only had one client where I had to add late fees.
A change that you may want to consider is adding a discount to your invoices if the clients pay early. For instance, a 2% discount if paid within 5 business days. I did consider this but decided not to implement it as the changes that I discussed above had resolved 90% of my cashflow problems.
Do Not Pay Your Bills Early
Earlier I talked about industry normal standards of paying invoices 30 days after receipt. That is the normal practice in almost every industry. Although I do not care for this practice, it is the standard practice. Many businesses will pay their debts just days before they are due, allowing them to earn interest on your money. I also do the same thing with my recurring expenses.
Many companies pay their bills as soon as they receive them. I am that way when I have an independent contractor working with me. I do know that they love it when they get promptly paid.
Cashback Credit Cards
One of the first things that I did when I opened my business was to obtain a business credit card. When I was researching available credit cards, I automatically sought out credit cards that gave me cash back for purchases. I use this credit card every month for payment of my recurring expenses. In fact, I have it set up for automatic payment! I love that feature. The cashback bonus comes off my payment balance due which is EXCELLENT.
Review Outstanding Invoices
I had a client that did not know that his accounting software had an aging report for outstanding invoices. He ran that report and found out that some of his clients had not paid him for months. All it took was for a couple of phone calls and these invoices were paid. He was so happy that I told him about the aging report. Now he uses it monthly.
Line of Credit
Another thing that you can do to assist with your business is to obtain a line of credit. Now the perfect time to get a line of credit is when you do not need one. These lines of credit can help your business during those times when you are waiting on your customers to pay yet you still have to make payroll.
If you have a business loan that has an extremely high-interest rate, consider refinancing the loans. This move alone could reduce your monthly expenses. Better yet if you have the funds available consider paying off the loan altogether.
Hire an Experienced CPA
Your CPA should be talking to you about your business and helping you find ways to reduce your taxes. They know what can and cannot be legally done to reduce your tax expenses resulting in more money in your business. If your CPA is not helping you and answering your questions, then maybe it is time to find a CPA that will.
High Overhead Business Expenses
Audit your expenses and cut back on unnecessary expenses. It is easy for your overhead expenses to get out of hand. If you cannot cut back on these expenses, then consider cheaper options. This is something that you just do once and forget about it. This is something that you should do on a regular basis.
I know that my overhead expenses have been creeping up over the last few years. I have been reviewing them and making cuts when necessary.
Sell Your Business Invoices
If you are having cash flow problems, one of the options is to sell your invoices. You would sell your invoices to factoring companies who will take a small percentage and give you the rest of the money upfront.
Use Electronic Billing.
Here it is. This is what you have been waiting for; the number one thing that I did to help my business was using electronic billing. Before electronic billing, my only choice for payment was to use PayPal or Venmo. It is so much easier to send an electronic invoice with the payment link already on the invoice. My clients get the invoice and can pay right then and there.
Yes, this method did cost me additional money. There is the monthly accounting software fee (I had the desktop version) and the transaction fee that I must pay for every transaction. However, I believe this method makes the business look more professional, and it is much easier for my clients. The easier you can make something for your clients, the better.
Managing your business money can seem like a fulltime job. But by instituting a few of these practices can make it easier on you in the long run. Remember to share this video.
Also, don’t forget to check out our blog for more articles.