40 Tips to Accelerate Your Cash Flow

This article is a reprint of Wise Bread's contribution to OPEN Forum from American Express -- where small business owners can get advice from experts and share tips with each other.

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Business is actually quite simple — generate positive cash flow, and hopefully lots of it. In practice, however, it is a little harder to accomplish. Here's some practical advice to improve your cash flow in the following five areas: Expedite Cash In, Optimize Cash Out, Increase Revenue, Decrease Expenses, and Save Taxes.

Expedite Cash In

1. Invoice on-time because every day you are late is at least one more day your customer will wait to pay.

2. Give credit to those deserving and consider this policy: "In God we trust — everybody else pays cash."

3. YOU set credit terms, not your customers. Do not let them dictate your payment terms or consider getting a new customer.

4. Invoice your customers as early in the process as possible.

5. Make collections a core competency and only outsource it if you have exhausted all internal resources.

6. Cut off customers who haven't or appear that they won't pay.

7. Deposit checks immediately — you may want to consider remote deposits or other options to turn checks into cash quickly.

8. Offer several convenient payment methods — customers should never have an excuse for late payment related to your lack of convenient payment options.

9. Set the payment expectations of new customers with a welcome letter.

10. Know your customers' payment procedures. Imagine the power in this conversation: "Tom, I'm aware you will be cutting checks this Friday and I wanted to ensure my invoice will be paid with one of those checks."

11. Stop carrying the 20% of your inventory that takes the longest to sell. In addition to your cash, your margins will actually increase because your inventory turns will likely skyrocket!

12. Negotiate with one or two layers up in your supply chain to hold the inventory longer.

13. Complete and close out past due projects.

14. Watch out for factoring — while the immediate cash is nice, effective rates for these services are often far in excess of 36% annually.

Optimize Cash Out

15. Demand trade credit from your suppliers, vendors, and contractors.

16. Take early-pay discounts if they are for at least 2%. If they are less, they are usually not worth it.

17. Deduct employee-paid premiums one month in advance. You should have the money from the employees by the time you pay the bill.

18. Renegotiate vendor/supplier contracts.

19. Improve asset productivity with more volume, an additional shift, or technology.

20. Avoid giving advances and loans to employees and others.

21. Refrain from the temptation to take money from your successful business and invest in another business in which you have little or no experience.

22. If chargebacks are likely, hold back a percentage of the payments you make to vendors and then settle-up with them once the chargeback is incurred.

Increase Revenue

23. Improve your understanding of your customers' needs through surveys and perfect your marketing angle to maximize your marketing efficiency.

24. Build and promote inexpensive but high-impact customer loyalty programs.

25. Create barriers or hooks to keep customers from switching.

26. Increase prices where appropriate — review at least annually.

27. Design and implement referral, affiliate, and re-seller marketing programs.

28. Use a freemium or no-cost but watered-down version of your service/product to attract users and make a compelling argument to encourage them to upgrade to a paid version.

29. Use contest and event marketing principles to generate "buzz."

30. Direct production and service employees who have free time towards marketing and sales activities until the volume picks back up.

Decrease Expenses

31. Renegotiate fixed expenses like your office lease and business service contracts.

32. Operate above break even. Eventually all businesses run out of cash if they cannot run profitably.

33. Automate the mundane and use your human assets to innovate and add value.

34. Take the lead amongst your competitors and innovate your business model in both effectiveness and efficiency.

35. Use "best practice" purchasing principles to ensure you are receiving the best quality, price, or combination of the two that adds the most value to your product or service.

Save Taxes

36. Use section 179 and bonus depreciation for qualifying capital expenditures.

37. Implement a section 105 and/or 125 plan to render health insurance premiums and expenses tax-free, where possible.

38. Capitalize on home office deductions and business mileage tax-free reimbursements

39. Maximize all other deductions allowed for business owners

40. Use retirement plans, charitable giving, family LLCs, and other advanced tax-planning principles to fill all of the low-bracket tax "buckets" and decrease your effective tax rate.

This is a guest post by Ken Kaufman. Ken focuses his professional efforts on helping entrepreneurs maximize cash flow, improve profits, and obtain clarity.