For large corporations, when there’s a cash flow problem, it’s related to revenue. But when you’re running a small business somewhere like Northwestern Ontario a cash flow problem is usually a collection issue. Late payments, forgotten invoices, and unresponsive clients can be particularly harmful to small businesses that already operate on thin margins.
By upgrading your cash collection and correctly managing your cash flow, a small business in Northwestern Ontario can significantly boost its chance of survival. In unsafe and economic times, you can’t afford to have unpredictable or sluggish cash flow.
1: Missing or Vague Payment Terms
One of the biggest mistakes that can lead to stunted cash flow is when you have vague or missing payment terms on your invoices. When your invoices just say that they need to be paid upon receipt, or worse, lack terms altogether, it gives clients maximum flexibility to procrastinate on payment.
Without payment terms, you don’t have much in the way of leverage.
Businesses should add a late payment clause, such as the bill increasing by 1.5% each month it’s late. You should also specify a concrete due date on invoices.
2: Manual Data Entry, and no use of Automation
Small businesses have to pay a few employees and deal with a limited number of clients, so it’s not impossible to run your accounts from Microsoft Excel or even, heaven forbid, Microsoft Word. But issues like the following can cause all kinds of billing headaches:
- transcription errors
- inconsistent formatting
- lack of an automated follow-up
Billing and invoicing automation software can help. Just make sure it’s compatible with Canadian compliance law.
3: Waiting Too Long to Send Invoices
Taking too long to send invoices can also delay cash flow. For example, if you’re working on a project with a client and you wait until its conclusion to issue an invoice, you’re spending money on the project for a long time before you’re seeing reimbursement.
For longer projects, deal with this by issuing invoices at predetermined milestones rather than using one large invoice at the end. When you receive payment at project milestones, it can make it easier to take on new contracts as you’re able to pay your expenses before contracts are finished.
4: Manually Billing Ongoing Service Contracts
If you have a service contract where you offer ongoing services, for example, IT support, consulting businesses will often invoice this service manually for each contract cycle or service cycle. This makes the invoice significantly less predictable than it could be.
Nonprofit Tech for Good, if you’re managing payroll and supply payments, it makes things much simpler when you have a steady cash flow. That’s a predictable date from a service contract rather than dealing with sporadic payment.
Control Your Cash Flow
For a small business in Northwestern Ontario, cash flow issues are usually caused by flawed payment collection rather than not having enough work. It’s important to have clear payment terms, quick invoices, and recurring billing. When small businesses make their billing process more predictable, they can improve stability, lower financial stress, and put themselves in a better position to handle an uncertain economy.
If you’re interested in reading more about similar topics, check out the rest of our blog posts.
