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How Businesses Can Increase Cash Flow Predictability

12 Jul 2018

Predictable cash flow is the lifeblood of every business. With the amount of money going into and out of a business, uncertainty makes investing in future-focused, longer-term needs more difficult, and it also causes stress on business owners as they struggle to ensure the books are balanced. These worries are often exacerbated by complicated payment processes full of negative surprises like credit card or third-party fees.

THE PROBLEM

There are roughly 30 million small businesses in the United States, each of which requires remittance for the products and services they provide. The number one issue facing many of these small businesses is how to make cash flow more predictable and consistent.

For most companies, cash flow can slow down for multiple reasons throughout the invoice-to-cash process, also known as payment cycle management. There are numerous challenges around cash flow, from not having enough cash on hand, to unpredictable payments, to customers who short pay or pay late, all of which can have a devastating effect on whether your business can grow and prosper. As a result of unpaid payments, delayed invoices and even human error, cash flow can be delayed and impact a company’s ability to survive on its own.

AUTOMATION AS A BEST PRACTICE

Business owners need to develop consistent processes and avoid shooting from the hip. As a matter of fact, one of the best ways to improve cash flow is via automation.

By automating accounts receivable software, businesses can strategically manage invoicing, payments and cash application, which accelerates cash flow and allows for growth. Implementing consistent practices will allow these businesses to gain a solid understanding of income, expenses and what’s next.

IMPROVE FORECASTING

Effectively managing the flow of cash becomes easier when income and expenses can be more accurately predicted. As financial projections of income and expenses are calculated, today’s managers know to learn from each round of predictions so forecasts become increasingly accurate with time.

Business cash flow forecasts can be rather accurate in the short term (around 120 days), but the farther out, the more can go wrong with these predictions. Consequently, smart managers know they must update projections regularly — monthly in some cases and weekly during crunch times.

Once there is an accurate picture of cash flow — both past and projected — identifying trends and navigating patterns becomes that much easier. For example, seasonality issues can cause businesses to slow down during certain times of the year, which has implications for inventory or staffing.

FLEXIBLE INSTALLMENT PLANS

Many business owners want to receive payments for their services all at once. However, sometimes a better solution for both the merchant and the customer is an installment plan. Years ago, installment plans were commonplace and created stronger connections between merchants and customers. With the proliferation of credit cards, however, many installment plans simply went away. And this is too bad, because a number of professional services today, including health care, dental care and legal services, are simply too expensive to completely pay off in one fell swoop.

This is where an installment plan can help to resolve the problem.

Take health care for example. Thousands of Americans do not have the financial ability to visit a physician on a regular basis to receive necessary, but expensive, care. As a result, the entire health-care system is negatively impacted and patients do not receive the assistance they require. By offering patients the ability to pay a little at a time for the medical services they receive, the attendance of medical cabinets by people with varying levels of income significantly increases. Payment plans are favorable for both sides, as physicians can be sure to get paid in time and patients can get the quality medical assistance they need at an affordable price.

A number of online apps are now available to help business owners minimize payment risk and increase cash flow predictability. One such app, Boulder-based ChargaCard, offers a secure network to provide alternative financing options intended to bypass expensive third-party financial institutions and predatory credit card firms. As a result, businesses can provide customers with flexible payment plans as well as 0 percent interest rates. And perhaps most importantly: Research suggests these businesses can improve their recovery rates of past-due invoices by at least 20 percent.

Allowing business owners to create a monthly schedule of automated cash transfers directly from customers to business bank accounts avoids financial stand-still while stabilizing cash flow. The solution is favorable for both sides as businesses get paid on time and customers can finally purchase the vital products and services they need at an affordable monthly price. ChargaCard also provides protection from transaction failures by offering a backup funding source feature that significantly increases the probability of getting paid.

In the end, there are a number of helpful tips and solutions that business owners can consider in order to improve the predictability of their cash flow. From implementing consistent business processes to improving forecasting and enacting installment plans, increasing the value of operations has never been easier than it is today.