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Finding ways to fund your business can be a challenge so hear are some business models where your customers provide the funding.
This can apply to many situations ranging from Networking and Memberships to Sky TV or Microsoft Office 365, get your clients hooked on paying a monthly or periodic payments and it should work wonders for your cash flow.
Any product in short supply creates a situation where clients are prepared to pay now in order not to miss out, here is an example:
Microsoft unveils its new Xbox One console Friday, one week after the release of the rival PlayStation 4.
Microsoft says the supply of the new $499 consoles is its biggest ever. But with record pre-orders — more than double those of the Xbox 360 back in November 2005 — the consoles may be hard to find.
Pay In Advance
Often used in the home improvement market for example conservatories, kitchens, bathrooms, getting customers to pay a deposit or in some cases all the money upfront (or on finance) puts you in the best possible position especially if you can set up accounts to pay your suppliers on 30 or 60 days.
Getting paid to bring people together is a great business model think of ebay, dating sites, or any on line market place where the owner gets paid when a deal is done.
How do you fund your business?
Cash is vital to you and your business, lack of cash kills businesses.
So how can you improve cash flow:
- Prepare a detailed cash flow forecast, schedule your direct debits and standing orders, knowing how much cash you need and when will help you focus on where the cash will come from
- Invoice your clients as soon as you can, often small businesses invoice late and this just lengthens the time it will take to collect payment
- Get stage payments on large contracts
- Negotiate payment terms with your suppliers, try to at least match the client payment terms with the supplier terms
- If you are able to spread payments do it, for example, most insurance companies will offer you that chance to spread the payments over 10 months
- Adopt ‘just in time’ for stock items, don’t carry more stock than you need to
- Pay sales commissions only after the client has paid
- Change weekly payrolls to monthly where possible
- Sell assets you don’t need
- Sell obsolete and slow moving stock
- Consider paying mileage allowances rather than owning company cars
- Chase your debts
- Get a good credit rating as it will help you negotiate better supplier terms
- File your accounts and tax returns on time to avoid penalties
- Credit check your clients and agree terms based on their credit history and rating
- Diversify to smooth out seasonal trends
- Control your costs and reduce them where possible
- Make cash collection a KPI for your business
- Finance your fixed asset purchases
- Use Invoice Finance if your clients demand long terms
- Discuss credit terms with your new client – set the expectation
- Change your credit terms to be less than they are right now – research has shown that invoices are paid 2 weeks late. So better to be paid late on short credit terms than late on long credit terms
- Get invoices out on time – be clear about what makes a service or product billable and bill it. Don’t be shy about billing promptly, the client has had the service\product, they need to pay for it
- Make it standout – clients processing lots of invoices may put it on the pile with the rest, but if it stands out then chances are that it will get paid faster
- Be able to report your aged debtors and then chase the late ones rigorously. Send a statement and call them – some people get so much email that it gets ignored
- Add late payment charges – you can always reverse them but it will generate a conversation where you can re-iterate your priority to be paid on time
- Get the entity right that you are invoicing – if it is called Jupiter Construction Limited, don’t put JC limited on the invoice
- Make it get to the right person – does it need to go to the budget holder or accounts payable or both
- Do you offer multiple payment methods – cheque, bank transfer, paypal, debit card, credit card – the more methods the more likely you will get paid faster.
- Review the average days to pay for your clients and target the late ones – don’t treat all clients the same
- Delegate your credit control – if you are running the business and delivering to clients you won’t focus on this and a part time resource can
- Send electronic invoices with Pay Now feature – Xero cloud accounting does this