Is your business ready for its next big opportunity? If you answered “yes” based on your experience, know-how, or sheer enthusiasm, don’t forget the one thing that can trump them all: cash. Often, the cash to hire, buy necessary equipment, and cover other startup expenses can make all the difference between a great opportunity and a missed opportunity.
So that you can be ready for the next big break that comes your way, help create sufficient working capital with these tips for taking control of your business’s cash flow.
Know where you stand. When it comes to cash flow, knowledge is power. Cash flow crunches don’t appear out of nowhere and they can often be spotted—and avoided—by knowing exactly where you stand with a cash flow statement. Income statements show sales, expenses, and profits at a given moment, but cash flow statements show the movement of money in and out of your business over a specific period of time. This will help you see whether you’re building or draining working capital.
Actively manage outflows. You’re in control of accounts payable, so don’t let spending run on autopilot. When cash is tight, delay payments as much as possible, but without paying late. Using charge cards to cover purchases is one option, but you can also consider bartering for goods or services, or using points and miles from credit card rewards programs. At times when you have sufficient cash on hand, take advantage of vendors’ payment terms that reward you for early payment with a 1 to 2 percent discount. Small discounts such as these can add up, and that’s money you can reinvest in your business. If early-payment discounts aren’t available to you, another possibility is to rely on credit or charge cards that offer them, such as the Plum Card from American Express OPEN.
Streamline monthly expenses. Short of billing more, the most obvious way to balance receivables with payables is to simply cut down on expenses. Target recurring costs because even a small reduction can add up to significant savings over the course of a year. Find creative ways, for example, to handle peaks in demand without hiring additional staff, by relying on outsourcing or temporary help. You might also consider renting or leasing infrequently used equipment or vehicles on a short-term basis instead of buying them, to avoid monthly payments or large one-time expenses. Also consider reassessing monthly services, such as the company’s cell phone plan, to cut back on unneeded services and costs.
Create a plan B. Even the most diligent cash managers need to find cash for unplanned expenses or for important investments, such as new machinery or tools. In these cases, it’s important to have several sources of financing lined up for when you need it. Planning financing ahead of time will allow you to find the best options, and you’re also more likely to receive financing before you’re cash-strapped. When conducting research, don’t overlook special lending programs you may qualify for, such as those designated for small businesses owned by women or minorities. 

Stay on top of receivables.
Business owners often feel they have no control over receivables, yet there are steps you can take to speed payments. First, state clear payment terms and stick to them. You may also want to encourage some customers with early-pay discounts of your own. Be aware, however, that some customers may feel in their right to take the discount without paying early, so be selective. Another tactic is to simply ask for a partial payment upfront—or for a larger initial payment—when it’s an option.

Offer a variety of payment options.
If you’re not willing to take the risk of offering an early-payment discount, another possibility is to encourage the use of charge and credit cards. Unlike checks, you won’t run the risk of a customer’s overdrawn account, or have to wait for a check to arrive in the mail.
Revamp collections. Stay on top of collections well before payments are overdue. Look for ways to improve your overall collections process by understanding your customers’ billing preferences and procedures. Begin by making certain that all customer information is up to date. By maintaining current telephone numbers and address information, you’ll speed collections work and reach customers promptly. Also be certain your invoice contains all appropriate information, such as your customer’s purchase order number or your vendor number, and make sure to send the invoice to the appropriate contact. Wrong contact information or missing information will only add more time to the collection cycle.
Outsource receivables. Bad credit can be contagious, so it’s important to prevent bad customers from affecting your good credit. Protect yourself from late-payers or non-payers by putting a reputable intermediary in the middle. Hire or assign a reliable bookkeeper or accountant on a contract basis to handle accounts receivable functions. His or her job will be to approve credit, make collection calls, receive payments and make deposits. By taking this active step towards strong accounts receivable, you’ll take a major step towards stronger cash flow.
Considering the extensive scheduling and planning required to keep any construction job on time and on budget, your business probably doesn’t lack for discipline. So put that discipline to work and make a commitment to stick to these cash flow tips. Over time, good practices will eventually become the routine, and you’ll soon find yourself in the position to say “yes” to whatever great opportunity comes your way.

Authored by: Federico Acuna, Vice President, American Express OPEN

Federico Acuna, Vice President, American Express OPEN, oversees the Plum Card, a charge card that helps small business owners better manage cash flow and free up working capital by taking advantage of the card’s built-in trader terms.