It’s not rare for service companies to have cash flow problems. It takes clever financial management to maintain a healthy service business – especially in IT. The fixed costs of providing IT services are high. It’s not a good idea to save on hiring, because a skilled team is essential to stay competitive.
But there are other ways of improving cash flow, without sacrificing your most important business assets.
1 – Ask for advances
Advance payments are a good business practice, especially useful in case of complex services with long time to deliver. Ask for them and offer them. You might find that even lowering the price in order to secure advanced payments could be healthy for your cash flow.
2 – Upfront payment
Offering upfront payment is another good practice that leads to better cash flow. Even recurring deals can be paid upfront instead of after delivery. It’s easier to sweeten deals with discounts when you receive the whole payment upfront.
3 – Quarterly employee bonuses
It can work for the most experienced team members, whose financial situation is stable enough to be fine with a larger bonus, but less often. It’s a simple change, but can make it easier to handle situations when revenue drops for unforeseen reasons.
4 – Fill up your customer pipeline
To keep a full customer pipeline, you need to create a repeatable, predictable sales process. It’s hard to do, but it’s a solid improvement that generates long-term positive results. Contact us to see how RightHello can improve your sales process – Get in Touch.
5 – Shorter payment deadline for customers
It’s not always the best idea. However, in some cases the deadlines are unnecessarily long – either because of a simple mistake in invoicing, or misguided managerial decisions. Review payment deadlines for customers. See if customers would be fine with paying you sooner – if yes, then it’s a very easy fix that will also improve your cash flow long-term.
6 – Longer payment deadlines for suppliers
This idea is even more controversial – but just because it seems crazy doesn’t mean that it’s not viable in some cases. Some of your suppliers might be fine with a longer payment deadline, so try to negotiate that whenever you can. However – never at the risk of losing a crucial, or high-quality supplier.
7 – Factoring
Factoring is a financial service provided by a factor – a company that buys invoices with long payment deadlines from your company. It does so at a minimal discount, and in turn instantly provides you with a percentage (up to 90%) of due payments. The rest – minus factoring fees – gets to you after the invoice is paid. The bigger the payments, the more it makes sense.
8 – Revolving loan
Also called evergreen loans. This type of loan allows you to withdraw, repay, and withdraw money again in any way and any number of times you want – until the arrangement expires. If your cash flow troubles aren’t easy to fix, then a revolving loan can be a lifesaver at times when revenue runs low.
Some of these improvements might be hard to implement in a short period of time. But I believe that you could easily apply a few of them within the next month. It’s worth the trouble – healthy cash flow allows business to thrive.