Facing businss cash flow issues is tough. It’s a cycle that’s hard to stop once it’s start.
But don’t worry, there are a few things you can do to finally get paid on time!
In order to get back to a positive place with your money, the first step is to get your cash flow under control. That way, you can finally be on the path to not hating your finances!
Getting paid on time, and keeping a healthy stash of money in the bank is the key to any small business’ survival.
And I’m not talking about just seeing a bit of profit on paper — I mean actual moolah in the bank!!! ?
Getting paid for the work you do is a huge part of making bank, but more importantly you need to get paid on time. Nothing is more frustrating when trying to grow a business without debt, than not having the money you need.
Cash flow is the heartbeat of any small business, and you need it to pay the bills, buy much-needed equipment, and invest in yourself.
Here’s how to get a handle on your cash flow (for good!) and actually get paid on time as a small business owner.
1. Pinpoint your real cash flow problem
It’s not always the most interesting of subjects, but as a freelance business owner you’re responsible for the success (or failure) of your business ventures. And this means cash flow.
It’s important to know the basics, and how you stack up.
Don’t worry, it’s relatively simple! Cash inflow refers to money coming into the business, and cash outflow is money going out.
There are 3 different types of cash flow:
Operational Cash Flow
This refers to any activities related to money coming into the business, through products sales, services, etc., as well as expenses spent on behalf of the biz.
This also includes paying yourself a regular salary, which is then paid out for personal bills and other expenditures that keep your business and personal ventures afloat.
Investment Cash Flow
As you can probably guess, investment cash flow comes from cash received, or spent, through investing activities. Any equipment or assets you purchase to grow or expand your business, or sell in the future, will fall into this category.
Financing Cash Flow
This last form of cash flow can be a dangerous one. It’s anything related to leveraging debt (like buying an office space, or personal loans) as well as payments made on those debts.
When you can’t repay your debts, then your business enters into a Cash Flow Crunch stage, which can lead to bankruptcy if you aren’t able to turn the situation around.
Now that you have an idea of the different types of cash flow, you can start figuring out what type of income problem you have. Taking inventory of where your business is at, and finding out how to increase cash flow is the first step towards success!
In the past, I shared that the major problem with my business was an operational cash flow issues, or rather, an income problem not a spending problem.
- Do you have a cash flow problem?
- What kind of cash flow issue do you have?
- Do you need to invest into your business?
- Are you using too much financing cash flow (or debt) to keep things afloat?
Now that you know the answer to your cash inflow problem, you can use these next steps to increase the amount of money coming into your business.
2. Clearly spell out all of your invoices
The first step to getting paid on time is sending out professional, clean, and easy-to-read invoices (duh!). I mean, do you really think your clients will pay you on time without a prompt from an invoice?
It doesn’t have to be anything fancy, but something as simple as a free invoice template created in Microsoft Word, Google Docs or Invoice Home, is a great place to start.
If you want something a bit more in-depth, you can use this free invoicing template from FreshBooks.
FreshBooks has a feature that automatically sends a payment reminder if a client hasn’t paid within 15 days. This keeps you from having to frequently follow up, but reminds clients and customers you don’t work for free!
You can also send a simple invoice straight from your PayPal account, although you’ll have to pay higher fees to receive payment.
However you create your invoice, make sure it includes these important details.
- A professional header
- The client’s contact info
- Project/invoice details
- Detailed description of services
- Updated payment address and email
If this is your first time creating an invoice, check out this detailed guide I wrote for The Write Life, on how to create your first invoice as a freelancer.
FreshBooks has this a recurring invoice feature which you can access by clicking on Invoices —> Recurring —> Create a Recurring Profile.
An additional vital step is to use a service that creates recurring invoices so you don’t have to create them manually. This will save you time, headache, and make sure you don’t forget to invoice someone (yes, that’s happened to me before).
The point is to simplify your invoicing process so you still get paid without having to spend a lot of your precious time.
3. Bill clients more often
Have you ever thought about billing your clients more often? Like even every weekly or every other week? Most freelancers only send out invoices once-a-month.
But how is that maximizing cash flow?
You have to be REALLY disciplined to stretch your money out over the entire month and stick to a budget, while hoping your clients pay you on time at the beginning of the next month.
This logic just didn’t make a lot of sense!
Think about it: if you start invoicing freelance clients on the 1st and the 15th, they will often start paying your invoices that much sooner.
In the definitive guide to getting paid as a freelancer, Brennan Dunn talks about strategies that help you get more money in your pocket. And his second tip on the list is to invoice more frequently — at least once a week!
“When I was first starting out, I invoiced twice a month. However, you should invoice as frequently as you can — preferably once a week. The shorter the loop between sending out an invoice and getting paid, the better. If you’re working on NET 30 terms (meaning: the client has 30 days to pay your invoice) and you invoice once a month, you’re looking at upwards of 60 days (2 months!) before getting paid for your time. This is less than ideal, especially since many of us don’t have the cash flow to support that.” — Brennan Dunn
Brennan has over a decade of experience building his own freelance agency and brings in thousands of dollars each month. I hope you’ll consider his advice!
Not sure it will work for your business? Don’t think clients will agree to pay more often?
Give it a try and see what happens. What have you got to lose?
Since doing this experiment I’ve noticed that clients like being billed more often because it works better for their budget too. It’s a lot easier to pay an invoice that’s $100 each week, than to shell out $500 at the beginning of each month (during the same time other bills are due).
Makes sense doesn’t it?!
4. Offer multiple payment options
Should clients pay you via PayPal? Do you accepts checks or direct deposits? Do you have a way to accept credit cards? Do you allow payments to be split into installments?
In other words, to increase cash flow and get paid on time you need to offer multiple payment options that are most convenient for your clients.
And even though it may come with a small convenience fee, credit cards have been proven to increase how quickly you get paid, and the amount of overall sales.
In fact, 52% of those surveyed made at least $1,000 more a month by offering credit cards as a payment option.
Most bookkeeping and accounting programs accept credit cards, PayPal, WePay, FreshBooks and even the occasional paper check, but there are lots of other payment options available.
- Credit cards via Stripe, or Square
- PayPal bank transfers or credit cards
- WePay, FreshBooks and other third parties
- Paper checks or direct deposit
- Mobile pay via apps
If a client requests a particular payment method, consider the options of time + cost if you decide to offer it to them, or what happens if you pass up this opportunity.
The key to this step is setting expectations for both you and your clients to follow. Be up-front with what you require to do business, how you want to get paid and what happens if you’re not paid on time.
5. Enforce a payment process
Aside from how to get paid, every potential and current client needs to know exactly when your company sends out invoices, and what happens if they fail to comply.
Create a simple document that outlines every detail for them and is integrated into the contract you both sign before working together.
The contract should also include the fact that you won’t continue working for them if you don’t get paid in a timely fashion.
Of course, you can give everyone a grace period, but if a client continues to be late on payments, it’s well within your right to cancel the contract.
This should be one of your non-negotiables, because as a online business owners you don’t have time to chase down payments owed to you, especially when there are literally hundreds (and maybe even thousands) of other clients you can work with.
You’re only as good as the systems you create and actually follow!
So whether you have a system for sending out invoices, or an e-commerce business that sells products, you have to outline the exact process for getting paid.
If you sell digital products, there are simple services like Ejunkie, Gumroad, or Shopify, that make it easy (and inexpensive) to get paid before delivering the product.
6. Stop business cash flow problems
Answering these questions will help you increase cash flow each month and maybe even allow you to start socking away money into your savings account. (Imagine that!)
To sum it up, here’s how to get paid on time as a small business owner:
- Identify whether or not you have a cash flow issue
- Make sure your invoices are clear, concise and error free
- Bill out invoices regularly and more frequently
- Offer discounts to clients who pay within the first few days
- Set earlier deadlines so you don’t have to wait 60 days
- Use an automated payment reminder system to follow-up
- Offer multiple payment options for every client
- Enforce a payment process if you don’t get paid on time
Now it’s time to get started!
Use these tips to stop business cash flow problems and create a process of getting paid on time. Is there a system or method you already use? Or are you planning to implement one of the steps listed here?