You’ve worked hard to build a successful business, and now you want to take it to the next level. Improving the way cash flows through your organization can help you maximize opportunities as well as avoid pitfalls that can throw a wrench into your growth plans.

Why Cash Flow Matters

As a business owner, you know the importance of maintaining good relationships with existing customers as well as generating business from new customers. Taken too far, however, gestures of goodwill could lead to unintended consequences: letting current customers slide on payments, or giving too-generous payment terms to new customers to get them in the door. Even if sales are booming and your business is profitable on paper, too little cash coming in when you need it can lead to significant financial pressure—even business failure.

Improving Inflow

According to a survey by the National Federation of Independent Business, 30 percent of small business owners believe the primary reason for cash flow problems is difficulty collecting money owed them. Here are five tips to speed up collections:

  1. Add a payment due date to invoices. State a payment due date rather than just a net number of days.
  2. Consider incentives such as a small discount for early payment.
  3. Explore late payment penalties. Be clear about the amount of the penalty and when it will be assessed.
  4.  Provide different payment options. You may find it helpful to accept credit card, online and/or ACH payments. Navy Federal can help with merchant card processing solutions.
  5. Review receivables aging reports regularly. Create a process for keeping track of due dates—automate it if you can so that you get regular reports on late payers. Follow up with late-paying customers immediately and often.

Managing Outflow

The flip side of getting money in sooner is slowing down how fast money goes out the door:

  1. Prioritize payments. There are some bills you need to pay right on time—payroll, for example. Others may be able to wait a bit longer.
  2. Negotiate favorable terms with your vendors.
  3. Consider just-in-time inventory. However, be sure not to run so lean that customers get frustrated because things are out of stock or you’re unable to provide services in a timely manner.
  4. Monitor expenses. Have a strategy, such as set spending limits and approvals to control spending.
  5. Plan ahead. Ironically, you may find that cash is tighter when business is booming. Although sales may be hot, it could be days, weeks or months between the sale and when you get paid. Being proactive about your cash flow needs will help avoid unpleasant surprises.