One area that we focus on at ProjectionHub is cash balance. For a small business, cash is your life blood. Often, business owners just put their head down, work as hard as they can as fast as they can. Then they check their bank account and it just doesn’t seem to reflect how hard they are working. Managing your cash is more than generating more sales and reducing expenses. In fact, there are a few tricks that can drastically improve your cash position without changing your sales or expenses.
- Deposits – A common way for business owners to raise cash is by requiring that customers put down a deposit for the product or service. Tesla is high profile example of how to utilize deposits to improve your cash position. As of December 31, 2012 Tesla had 15,000 orders from customers who had put down either $5,000 or $40,000. Even if all 15,000 orders were only for the $5,000 version, Tesla would have still raised $75 million in customer deposits. This improved their cash position and gave them asset that they could then use to raise additional capital through lenders and investors.
- Discounts for Early Payment – Many of your customers may be just like you. They are trying to preserve cash, and are not able to take advantage of early pay discounts, but it may be worth a shot. Many businesses will give their customers a 2% discount if they pay their bill within 10 days. Many software as a service companies that charge their customers a monthly fee will give a steep discount if you pay 6 or 12 months in advance. For example, Quickbooks Online typically offers up to a 20% discount if you pay for an entire year in advance. This is a great way for Quickbooks to improve their cash position, and lock in customers for the long term.
- Factoring Receivables – Waiting 30 or more days for your customers to pay can kill your cash flow. You may need to consider factoring your receivables. Factoring companies will give you cash immediately for your outstanding receivables. For example, a large customer might owe you $50,000, but they won’t pay for 3 months, you need the cash now though, so a factor might give you $48,000 now and will keep the remaining $2,000 when the customer pays. Our partner, Lendio, provides a free service that will match you with the right lender or factor to support your cash flow needs. Find a Factoring Company
- Negotiate Payment Terms – You might be surprised to find out that your suppliers may be ready and willing to negotiate payment terms with you. Some vendors may give you an extra 15 to 30 days to pay your bills just because you asked, and because you are a valued customer. Others may give you extra time, but may charge a nominal late fee. At times it may be worth paying the $50 late fee to hold on to your cash for another month.
Keep these 4 techniques in mind when you are looking to raise additional cash, or simply need to preserve your cash. You may not always be able to raise additional funding through loans or investments, so that is when these 4 options become very important.