Finances are a personal thing. We’ve assigned personal meaning to our wealth or lack thereof. When finances are great, we feel great. But when finances are strained, we feel terrible. And if that’s because our business is struggling, the financial anxiety can be overwhelming. According to a study completed in 2020, the majority of small business owners can relate:

61% of small business owners regularly struggle with cash flow issues

resulting in 32% of small business owners being unable to pay vendors, loans, themselves, or employees

Poor cash flow is a very real, very common problem for small businesses. 

While there are many factors that could be contributing to your financial strain, I’ve found that poor accounts receivable processes are at the root. Assisting clients with their AR processes is part of our winning client strategy here at Officeheads, so I’d like to outline just a few small improvements you can tackle even this month to become more financially stable.

Accounts receivable is all about the money coming in for the goods and services you provide. Obviously, this is important! This is your revenue, and you need to have a steady flow of cash coming in for your business to survive.

But sometimes, that steady flow is hindered because no proper AR Process has been established.

You may have plenty of AR on the books—goods and services sold but payment is outstanding. But if you don’t have standard processes for collecting those payments, your company will suffer.

STEP #1: ALWAYS INVOICE AT THE SAME TIME EACH MONTH
That’s why I recommend a standard AR Process that starts with consistent billing each month—such as the first of each month, the first week of the month, 24-hours after contract execution, and so on, without fail. When you invoice consistently, you get your clients and customers in a regular pattern of business: they receive goods and services, then they pay for those goods and services in a pattern..

But billing consistently isn’t all there is. You also must have clearly defined terms of payment. Many small businesses need short payment cycles, so I recommend that your invoices say “Payment due upon receipt.” If that invoice is processed immediately, per the terms, you should receive payment 15 days later. 

STEP #2: SEND A REMINDER 15 DAYS LATER
If no payment has been received within 15 days, send a friendly reminder email. Oftentimes your clients were simply a little delayed in submitting the payment. But your consistent follow up will set the standard for how it should be handled in the future.

STEP #3: SEND A STATEMENT 30 DAYS LATER
If no payment has been received within 30 days, send a statement showing the overdue payment and terms.

STEP #4: CALL TO ASK ON THE 45TH DAY
By the 45th day, if you’ve still not received payment, it’s time to give a call. Be sure to think of this as a concerned check-up call rather than a demanding collections call. Again, it’s possible something has gotten off track. Most people strongly dislike making and receiving these calls, so be gentle yet firm in your need for payment. Remember, your relationship with the client is good! They bought goods and services, and they committed to payment; now you are simply closing out the loop.

An AR Process like this won’t eliminate all delayed payments, but it will make your cash flow much more consistent. Ultimately, your business will be stronger, ready to grow strong into the future when you have steady cash flow. To learn a bit more about this process, watch this Officeheads video on AR Processes. Do you have a consistent AR Process like this? If you’d like some help getting this set up for your business, we can help you get on track toward your goals.