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5 Tips To Get Better Cash Flow In Your Service Business

Guest post by: Susan Regier

Article Overview: It is common for service businesses to be waiting for payment from sales for some time after a sales is made, especially in B2B dealings.

5 Tips To Get Better Cash Flow In Your Service Business

It is common for service businesses to be waiting for payment from sales for some time after a sales is made, especially in B2B dealings.

This is because clients are customarily invoiced at the conclusion of a service , or at various billing point along the way, and there can be quite a time lag before payment is received.

For example, a business might buy in products in May to resource a training program delivered in June. In the meantime it pays its overheads, delivers the service, and bills the client - but it may not receive payment till July.

In this example, there is a negative cash flow between the time that money goes out to buy resources or equipment, and the time that money is received for work that is done.

If this situation is repeated over a significant percentage of the jobs that are undertaken, the business will be operating with a much lower cash flow than it should ideally have.

If you’re in any kind of service business, it’s important that you set the parameters under which you offer your services, and aim to reduce the agreed time in which payment is due.

These 5 tips may help improve your cash inflow:

1. Create a “Terms of Trade” document or statement that sets out how you will bill for your services. This gives you an element of control over when clients will agree to pay or how frequently payments are expected to be made.

While it does not guarantee that payments will be received within the stated timeframe, it does establish a set of expectations to encourage payment as agreed.

2. If your business requires that you work with clients over a period of time, develop a billing policy for work in progress and put this into your terms of trade agreement.

3. Specify the frequency of payment within your terms of trade, and that shorten the gap between installments as much as reasonably possible.

For example, set out terms of trade that request payment in 14 days rather than 30 days.

Do not offer long payment options of 30, 45, or 60 days with the inevitable “reminders”. If you offer longer payment periods, you can hardly blame your clients for taking advantage of them to your cost.

4. Invoice clients immediately your work is performed. Don’t leave invoicing until the end of the month.

5. When you do your books, process and send your invoices before writing your outgoing cheques, so you get your bills into your clients’ systems as your first priority. Do not have a work routine that effectively contributes to the delay of your own income.

Following these tips should help you establish terms of trade that work in your favour.

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