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5 things you can do to improve cash flow (so you don’t need to sweat payroll)

I got a lot of reaction to my post about sweating out payroll; it seems that a lot of us are anxious about getting our cash in the door. 

Here are five ways to improve the cash flow of any business!

1. Improve Your Payment Terms

Setting favorable payment terms with your clients is the easiest way you can improve your cash flow. 

For projects lasting ~3 months, I recommend 50% of the fee before kick-off, 40% in 30 days, and the remaining 10% in 60 days. For longer projects, take a significant (40% – 50%) fee before kick-off then break the rest up into monthly payments over the planned duration of the project. 

Don’t bill on milestones (they are going to get delayed, and you are not going to get paid).

Yes, some clients will push back — but if you start with terms in your favor — you’re more likely to keep your cash flowing. 

2. Don’t pay your vendors so fast.

Business owners always want to pay their vendors right away. Knowing what it means to wait for payment, they don’t want to delay. 

But sending payments early strains your cash flow, I’m not suggesting you pay late — but pay just on time. If there’s a big project, break it into monthly payments. 

3. Get your clients to pay electronically.

Not having to run back and forth to the mailbox, and the bank is gold. Switch to receiving electronic payments from your clients. You can set up QuickBooks to accept ACH payments for a minimal charge (less than $10/transaction), and the money will be right there in your bank. 

Many clients will pay you electronically with no fee if you give them your ACH numbers, but you have to ask them to set you up. Do it!

4. Be proactive about collections.

Anytime someone doesn’t pay on time, someone on your team needs to follow up right away. If you are working with big companies, find a contact in their A/P department and follow up with them to make sure the invoice was received and get the date they scheduled payment.

5. Track your cash flow weekly. 

If you are growing fast, or are low on cash reserves it makes sense to track your cash flow weekly so that you know where you stand and can confirm any payments that are needed to ensure your payroll!

If you’re not tracking cash flow weekly and want a spreadsheet to help you to that, hit reply and let me know, and I’ll get you that link!

Anything that you are doing that I didn’t list? I’d love to hear your ideas.

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