Barry Eitel

Cash crunches can be deadly for new businesses—even if your business is turning a profit, a sudden need for funds when your bank account is low can wipe out a fledgling company. A cash crunch could mean defaulting on loans, angering your employees come payday, and not being able to fulfill invoices. Additionally, cash flow problems can be extremely frustrating because your company might be doing fine on paper, but the timing of cash inflows and outflows in not syncing up. With some planning and quick thinking, though, there are simple ways you can improve your cash flow and get out of a sudden cash emergency. What is Cash Flow? Broadly speaking, when we’re talking about cash flow (or cash on hand), we’re talking about all of the funds coming into and going out of your business. Cash flow means accounts receivable versus accounts payable. You can think of cash almost like water—it flows into your business when you sell a product or complete a service, then it flows out of your business when you buy inventory or pay employees. Problems arise when your cash outflows overwhelm your cash inflows. Importantly, cash flow is distinct from profit. A profitable firm can still have cash flow issues, particularly if revenue is intermittent. While you must be concerned with turning profits as small business owners, monitoring cash flow should be a consistent interest because a cash crunch can have immediate repercussions. 1. Collect What You’re Owed If you are in the middle of a cash flow crisis, it’s no time to be shy about collecting money you are owed. If there are outstanding unpaid invoices, reach out with a reminder to your customers or clients. You should make a habit of collecting on outstanding invoices in general. If emails go ignored, a phone call might prompt a more attentive response. Collection agencies should only be used as a final option because you will lose out on a significant amount of the money you are owed and the collection process can make waiting for your payment take even longer. 2. Get Paid in Different Ways One way to increase the chances that invoices will be paid on time is to expand how you accept payments. If you are tired of waiting for checks to arrive (and then clear), look into accepting credit and debit cards—online payment portals like PayPal, Venmo, and Square could be useful, too. These methods can significantly reduce the time spent waiting for cash inflows, which, in turn, reduces your risk for a cash crunch. It is possible to set up automated clearing house (ACH) deposits, which are great for collecting automated, recurring payments. Even cryptocurrencies like Bitcoin are an option if your clients are into it. 3. Match Payment Terms Look at your payment term lengths for customers and compare it to your vendors. Perhaps you agree to pay your invoices within 30 days but set customer payment terms at 45 days. While this lengthy repayment period might impress your customers, the difference in payment terms creates a cash flow gap. If you find yourself beset by cash crunches, sync up your payment terms. 4. Boost Revenue, Even in the Short Term It may be possible to raise revenue quickly to overcome a cash flow issue. Many retail businesses launch flash sales for this reason. You might not earn as much revenue as you could, but you can bring in a larger volume of cash inflow in the near term. Be creative based on your business—maybe you there is a way to do a “buy one, get one free” sale for your product or service or set up a subscription service. It might be possible to make sales in advance, so to speak: think about an amusement park selling season passes. While customers hypothetically get a better deal if they use the pass often over time, it raises a serious amount of revenue up front. 5. Raise Funding from Unpaid Invoices Some loan services will actually provide funding based on outstanding unpaid invoices. This deal isn’t as good as getting paid outright, which is why you should do your best to collect on them first. If this process is taking too long, though, you can quickly get some cash in your bank account through accounts receivable financing. You will have to pay interest on these loans, but these can be a lifesaver in a bad cash crunch situation. 6. Monitor Cash Flow with Automated Software There are various software options, like Up Your Cash Flow or Pulse, that help you monitor your cash flow and alert you to possible issues. Automating this aspect of your finances can help you stay focused on growing your business while avoiding upcoming cash on hand problems.

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Bookkeeping for your small business.

Simplify your bookkeeping and save money

Sunrise Blog

Articles by Barry Eitel

Bookkeeping for your small business.

Simplify your bookkeeping and save money