1.
Get Paid Up front
First, try to obtain payment
up front. Require customers to make deposits. Consider offering an incentive for
payment upon signing. Secure cash to help your business flow through the project.
Secure the cash you need in advance of the work. Up front payments not only work
in the professional service industry, but are also applicable to retailers through
the purchase of gift cards. Did you know that:
- Almost
50 million adults purchased gift cards in the last year.
- 61
percent spent more than the card value.
- 55
percent of gift card holders make more than one trip to deplete the value of the
card.
- 33 percent of total the value is never
used or redeemed by the user.
- 17 percent
of gift cards are never redeemed.
(Source: Standard Register's National Consumer
Retailer Survey of Plastic Card Usage)
Whether
it’s through gift cards or down payments, get your cash upfront.
2.
Collect Payment
Now that you’re obtaining pre-payments from current
customers, make sure to collect from past clients. Be polite, yet persistent with
14, 30 and 45 day terms. Shorten from 30 and 60 day collections. Encourage clients
to make progress payments as soon as possible. It’s better to get 5 percent
of what is owed on a weekly basis rather than nothing at all. Above all, try to
maintain a good relationship with your clients. These are difficult times for
everyone.
3. Try Factoring
Factoring
is a long accepted financing model that allows your business to get paid immediately
on outstanding invoices. A factor will pay you the balance of an invoice in advance,
minus his fees, and wait to receive payment from the client. First, however, a
factor must verify that your client is willing and able to pay. Accordingly, this
method works best for well established customers with good payment histories.
This is a quick and relatively risk-free way of getting the cash you need without
having to wait 30, 60 or 90 days for payment.
4.
Slow Your Payments
Another way to free up extra cash is to slow or reduce
your payments. Contact your vendors, lenders and credit card companies to renegotiate
your rates, fees and repayment schedule. The key is to do so before you begin
to have payment issues. You should be able to leverage your good repayment history
to obtain more advantageous terms.
5. Borrow
from Alternate Sources
When all else fails, borrow cautiously. Many experts
agree that borrowing from yourself to aid cashflow is preferable to losing your
business. Start by liquidating inventory, equipment and depositing cash owner
equity. However, as you would with a bank, you should always have a plan to pay
yourself back. If you have a line of credit, meet with your bank about keeping
your line open and explore the potential of increasing the line or removing the
condition that requires you to rest the line periodically. Meet with a SCORE
mentor to evaluate cashflow and look at the safest and smartest ways to manage
debt obligations.
Brought to you by SCORE, America's
small business mentors, at www.score.org.
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SCORE
is a nonprofit association dedicated to entrepreneur education and the formation,
growth and success of small businesses nationwide. Through a partnership with
the U.S. Small Business Administration, SCORE's volunteer business counselors
have been helping small businesses succeed and grow since 1964. SCORE's 10,500
volunteers provide free counseling and low-cost educational training workshops
to aspiring entrepreneurs and small business owners from 389 office locations
across the country. All of SCORE's business counseling services are available
to U.S. citizens or resident aliens.
