Five Tips to Help Your Business Cash Flow

Article contributed by Affinity Federal Credit Union from their quarterly magazine, Affinity Connections. For more information about Affinity or to view Affinity Connections in its entirety, visit www.affinityfcu.org/ connections.

Cash is the lifeblood of any business and nothing can be more deadly for a company than poor cash flow. The key is to collect the money owed to your business faster than you outlay funds for expenses, no easy task in today’s economy.

In these challenging economic times, businesses are turning to a variety of cost-cutting moves to save money, such as limiting spending, leasing instead of buying, delaying hires, and foregoing owner’s salaries. Before you pull the trigger on any of these drastic measures, take a close look at some interesting alternatives:

1. Deposit payments quickly. Waiting to deposit checks increases the
   risk of loss and delays your access to funds, so make them on a weekly or daily basis. Some financial institutions allow you to expedite payments by depositing them online from your desktop using a scanner which saves time and money by avoiding a trip to the bank for you or your employees.
   
   
2. Use ACH. For an easy way to collect payments, use ACH (Automated Clearing House), which electronically transfers payments directly into your account. This streamlines billing and collections, and offers customers payment convenience. Most financial institutions provide ACH services.
   
   
3. Leverage business credit cards. Using a business credit card for variable expenses keeps more cash on hand and makes payments more predictable. This is a good move if you have a low-interest business card and a great option if you pay your card balance on time and in full. If your card has rewards points, take advantage of benefits such as cash back, merchandise deals and discounts on future travel costs.
   
   
4. Incent customers to pay promptly. Consider offering a discount—generally 5 percent or less—for fast payment, such as within seven days of the invoice date. On the flip side, implement a late fee to discourage customers from waiting too long to process payments. Late fees can range from as little as $50 to 50 percent of the invoice total.
   
   
5. Accept credit cards. It’s never been easier to have customers pay with plastic. There are a number of online services, such as PayPal™, that will let you accept credit card payments without having your own merchant account. If you do have a merchant account and collect credit card payments, evaluate your merchant services provider. Optimize your cost by negotiating a better rate and improving the turnaround time it takes to fund your transactions.

June 30, 2010