Getting cash flow positive is something every new business owner aspires to from day one. Once that important milestone is achieved, improving positive cash flows remains an ongoing and growing objective.
Did you know that over half of Canadian small businesses cite cash flow management as a top concern? Out of all the challenges that small businesses face on a daily basis, cash flow is what often keeps owners awake at night. But with the right tools in your office pocket, you can rest easy knowing that you are truly on top of your businesses’ cash flow situation.
Below we outline some tips on how cloud technology can help improve your small business’ cash flow.
In recent years there’s been a massive growth in organizations implementing strategies to move to a completely paperless ecosystem. Apart from being much more environmentally friendly, removing the need for physical paper administration saves time and money.
Advancements in technology mean you can easily achieve the same for your small business. Instead of using cheques for payments, you can allow your clients to pay online. It can take several business days for a cheque to clear because the physical piece of paper has to move between the various parties (from your customer to you, from you to your bank, and then from your bank back to your customer’s bank to request payment), and the handling fee associated with it. On the other hand, domestic online payments will clear in one business day (sometimes instant, depending on the payment method) and will be much cheaper.
Using cloud-based online accounting software, like QuickBooks Online or Xero, allows businesses to create and send online invoices directly to clients via email. The online invoice will also contain a “Pay now” link to make it easy for clients to settle the invoice. The easier you make it for clients to pay you, the faster you are likely to receive payment.
Both Xero and QuickBooks Online enable automated invoicing for recurring invoices, as well as gentle follow up reminders for outstanding invoices.
Automate your billing process
Many small businesses know there are things they can and should do to improve their cash flow. But with so many aspects that can have an impact on the cash flow cycle, it can be difficult to know what to tackle first.
To start with, there are two simple optimizations you can address today that are sure to have an almost immediate positive impact on your cash flow.
The first is making sure you send your invoices out on time. It sounds simple enough, but with time being a rare commodity in any small business, billing often gets delayed. The sooner you send out invoices, the sooner the payment terms will kick in, the quicker you will receive payment and the healthier your cash flow will be.
Secondly, make it easy for clients to pay. As we mentioned above, the latest software can be used to send online invoices with links that take the customer directly to the payment options. If they can pay an invoice in 5 minutes from opening their email, chances are your invoice will be settled much quicker. However, if clients have to move from one platform to the next, manually entering details into their bank, double checking that the amount is correct and logging it manually into their accounting software, your invoice is likely to be set aside until they have at least half an hour of free time to go through the whole process.
Both these aspects can be taken care of through automated billing. Manual processes are prone to human error that can take time to fix, delaying payment even further.
An example of an automated billing platform is Plooto. Plooto can be integrated with your accounting software to automatically import unpaid invoices and bills and makes it easy for clients to pay through email, credit card or pre-authorized debits. It can also be programmed to send automatic, gentle payment reminders.
Improving cash flow is not just about looking at accounts receivable. Beanworks can be used to automate payments on the accounts payable side to take full advantage of maximum vendor payment terms while still making sure you pay on time to avoid any late payment fees or interest.
Forecast your cash flow
Cash flow forecasting allows businesses to take a proactive, rather than a reactive stance towards their current cash position. This will give you time to react to any identified potential future cash shortfalls.
Software like Dryrun allows cash flow data from QuickBooks Online or Xero to be imported and then adjusted so businesses can test different scenarios based on when cash is expected to come in and when bills are due. Instead of just paying vendor invoices when they come in (which is rarely a good strategy) and running the risk of depleting cash reserves, business owners can strategize and plan when to pay certain bills without ruining the relationship with a supplier.
It also gives you time to plan how expected future cash surpluses can be put to good use to grow the business overall.
There is arguably a better feeling for any small business owner than seeing a positive cash flow at the end of the month and nothing reduces stress levels more than knowing your cash flow is under control and being managed effectively. With these cloud technology tools in your arsenal, you can focus on improving other areas of your business without having to worry about your cash flow.
At Enkel, we help small business owners to streamline their back office processes through cloud-based technology and our professional team of accountants and bookkeepers. Whether your company is located in Vancouver, Edmonton, Calgary, or Toronto, we’ve got your bookkeeping needs covered! Contact us today to learn more.