What can I do to get paid faster and improve cash flow?

by Debi Enders

The biggest threat to small businesses is often not a lack of profit. It’s a lack of cash flow. Slow-paying customers are frequently the culprit. So, what is a business owner awaiting payment to do? While no one solution works for everyone, cash-strapped business owners can take proactive steps to keep cash flowing — making payments run more smoothly and helping them get paid faster.

1. Establish credit policies. Extending credit to customers is a courtesy, not a requirement. When you extend credit, you are, in effect, financing another party’s business. By spelling out payment terms, limits on outstanding balances and delinquent account policies — and clearly communicating them to customers — you can minimize abuses of this courtesy.

2. Invoice promptly. Some businesses deliver their products and services immediately but wait weeks to bill customers.

3. Get serious about collections. Many small businesses are not aggressive about collecting past-due invoices, fearing possible damage to customer relationships. A poor collection system communicates that slow pay is acceptable. Systems that notify customers on the first day an invoice is past due communicate the importance of prompt payments.

4. Consider alternate payment methods. For companies whose employees visit customers’ homes or offices, mobile technologies that take electronic payments help streamline the billing process and reduce the number of bad checks to be collected later.

5. Use technology to accelerate collection. If you automate your lockbox, customer payments can be sent directly to your bank instead of your business, helping ensure that funds are deposited on the same day they’re received.

Depositing paper checks electronically via remote deposit and implementing electronic accounts payable systems can also improve cash flow.

Debi Enders (debi.enders@commercebank.com) is vice president, small business banking at Commerce Bank.