The default payment period for most of us who bill clients after services are rendered is 30 days. When you examine your receivables, though, you see those 30 days often turn into 45 days or even longer. Think about the difference it could make to your cash flow if you could significantly reduce the time you wait for folks to pay your bill. As it turns out, you can. And it’s not even that difficult.
- Change your terms. So simple, most of us don’t even think about it. Why exactly do we offer 30-day terms? Because that’s the way we’ve always done it. Now your established customers might not be thrilled if you suddenly changed your terms to COD or Net 10, but there’s no reason on earth you can’t bring new customers on with terms that bring your cash in quicker. Just do it.
- Offer bank financing. Now this option works best for high-dollar purchasing, but if you set up a program through a local bank to offer free or low cost financing, you can remove all objections to purchasing. You’ll pay a fee to the bank for the service, but the best part is you get your cash up front, and any collections in the future are the bank’s responsibility.
- Accept credit cards. I’m astonished how many businesses still go the paper invoice, antiquated check route. You can literally turn any smartphone, iPad, or tablet into a credit card reader, so there’s no reason not to swipe your customer’s card on the spot. You’ll pay a small percentage for processing, but you have access to funds right away. No need to remember to pick up stamps and wait for months for a check to arrive.
- Build a reverse cash flow model. The old-fashioned model is to build a product or deliver a service and wait for the customer to pay. But think about the way Dell revolutionized the way we buy computers. Rather than building machines and waiting for people to show up at a store, Dell took orders (and payment,) built their machines to customers’ specifications, and then shipped the computers out. Even if you’re delivering a service, find a way – like an annual service fee – to get your payment up front, and you’re radically altering your cash flow.
- Change your billing frequency. If you provide a service on the 1st of the month, but don’t bill until the end of the month on 30-day terms, you’re looking at roughly two months before you see your money. If you start billing weekly, or even daily, you’ll see payments arriving throughout the month, ultimately far quicker than you would if you held your billing until the last day of the month.
So often we blindly follow established practices – like 30-day terms – with no good reason other than that’s the way it’s always been done. In today’s market, though – given that you can send money anywhere in the world instantly – there’s no reason we can’t change the way we do business in a way that benefits cash flow.