As accountants, we know that cash flow is the heart and core of a business. When something goes wrong with a company’s cash flow, it can jeopardize the entire operation. After all, you need cash to cover your expenses and overheads.
It is not surprising that 82% of companies fail because of cash flow issues, and the last thing you want is for your customers to become just another statistic. When your customers succeed, you succeed. Helping them increase and better manage their cash flow can help their business grow and prosper.
But where to start ? Here are five ways to help clients improve and manage their cash flow this year.
One of the easiest ways to increase a company’s cash flow is to adjust the prices of products or services. When was the last time your customers raised their prices to account for inflation, demand, or to provide greater value? If it’s been a while, maybe it’s time to review and raise prices accordingly.
Customers may be reluctant to raise prices because they fear losing customers. However, customers who realize the value of your customer will stick around no matter how much the price increases, and these are the best types of customers to have. They respect and appreciate your customer’s business, and often it’s the customers who pay on time or in advance.
Customers who are only concerned about cost may have already caused problems with your customer’s business. Unfortunately, in many cases, these customers have to be chased for payments or have high demands (fast, discounts, etc.) that are difficult to meet.
So, revise and readjust the prices if necessary. If you ensure that customers are paid fairly, they will likely see an increase in cash flow.
Along with pricing, customer contracts can hinder or improve cash flow. The faster a company is paid, the less likely it is to have cash flow problems. Therefore, it is important for customers to review their contracts and determine if they are supporting their cash flow. Do payments need to be made quickly or are they waiting two or even three months for payments?
If contracts have a long payment term, such as net 60 or 90, your customers may struggle to bridge the gap between delivering services/products and receiving payments. Therefore, payment terms may need to be adjusted to ensure that new customers or customers pay promptly. Where appropriate, it may be possible to renegotiate existing contracts to obtain more favorable payment terms.
How are sellers paid? In a Deloitte study, 30% of middle-market businesses say their accounts payable cost $8 per payment to a single vendor, and that’s something automation can help with.
Automated processes can reduce labor overhead related to accounts payable.
However, there is so much more clients can do to keep their cash flow running smoothly:
- Exam when salespeople are paid. In case of prepayment, try to adjust payments even by a few days. Customers can also negotiate with suppliers to make their payment terms long enough to get paid on time. For example, a customer can be paid in 40 days by his customers and must pay the supplier in 30 days. Changing supplier payment terms to 45 days would be very beneficial and allow for prompt payments.
- To negotiate the terms and even the prices often. Encourage your customers to request different payment terms, as they are unlikely to be offered otherwise.
You can also advise your customers to use an online payment service like Melio. Such a service can:
- Help provide the cash relief they need.
- Offer points and authorize credit card payments, effectively delaying cash outflows to a time more optimal for your customers’ businesses.
- Allow customers to pay with a card or bank transfer, and vendors get paid using a preferred method. Delaying payments using a strategy like this makes everyone happy.
- Provide additional Accounts Receivable support so customers can easily send invoices and receive payments.
In short, don’t be afraid to turn to technology to help your customers.
If your customers’ billing processes are not optimized and reviewed often, they may be holding back their own cash flow. You must help them:
- Standardize invoicing processes
- Create protocols to send service invoices at the same time
- Send invoices using the same method: email, mail, etc.
If customers make payment as easy as possible, they will be paid faster. Your goal should be to remove all barriers to payment that customers face. The software offers the possibility to easily pay using several payment methods. Depending on the industry or type of business they run, they may even be able to get paid upfront for their services or products.
You’ll also want to assess how customers handle unpaid invoices.
Automation can be put in place to help manage unpaid invoices. For example, customers can implement automation systems that:
- Remind clients or clients that their invoice is due in X days
- Automatically send overdue invoice reminders
Reassessing your customers’ processes and using automation can help them capture payments faster. Going days without collecting bills will result in lost cash. Automating invoices, reminders, and late payment notices can make it easier to receive payments without the huge overtime hours involved.
Of course, one of the most obvious ways to improve cash flow is to reevaluate your customers’ spending. Cutting costs can immediately improve cash flow, and that’s something your customer has control over.
Sit down and review the expenses and costs. There may be expenses that were relevant at one time and are no longer necessary today. Go through each item with a fine-tooth comb and eliminate or reduce unnecessary costs.
As you review expenses, consider whether there are more efficient options or whether the client’s expenses should be allocated differently.
Cash flow is crucial for every business and an indicator of the financial health of the business. As an accountant, you can use these tips to help your clients improve and manage their cash flow this year. When your customers succeed, you succeed.
Katie Thomas, CPA, is a Content Creator, 2021 40 under 40 CPA Practice Advisor recipient, 2021 Top 50 Women in Accounting recipient and owner of leaders onlinewhere they help accounting professionals grow their impact, influence and revenue through thought leadership and digital marketing.