How To Articles

How to Manage Your Cash Flow

If you want to keep your business running smoothly you have to properly manage your cash flow. Even if you hire an accountant or a bookkeeper, you still need to understand basic money management principles. You also need to establish a system for how customers will pay you? cash, personal checks, debit cards, credit cards, online payments. You should also figure out the terms of debt collecting in the event that a customer doesn't pay?

The first thing you're going to do is open a commercial bank account with a bank that you trust. When you go to set up your account, be sure to bring personal identification and the business license and name registration papers (these are required), as well as any other documentation you think you might need. It might also be wise to have the bank attach a line of credit to the account so that you have a way to make purchases during the early stages of your business (before the money starts coming in). You can also ask about any other small business services your bank might have.

Now you need to figure out how your customers will pay you. I suggest giving them as many options as possible. Customers these days expect it. There are certain expenses involved with providing customers with various payment options, like transaction fees or merchant fees, but not allowing them to pay through debit, credit, online, etc. will likely result in fewer sales. Do what you can to provide enough options to keep your customers satisfied, but if you have to pick and choose then here is a breakdown of some popular payment methods:

1. Cash
   
   Cash is nice because there is no processing time involved. On the downside it can be easily lost or stolen, so making frequent bank deposits is a good idea.


2. Check
   
   More and more businesses are choosing not to accept personal checks because of the risk involved. If you do decide to accept checks, however, take certain precautions. Check photo IDs or only allow purchases up to a certain amount. Always look at the dollar amount to make sure that it's written correctly. You can even take the time to write down information like a driver?s license number on the actual check.


3. Debit
   
   To accept debit cards you have to have a debit card terminal, which can be purchased or rented. Many banks will offer both equipment and services. Keep in mind that there are also transaction fees involved with debit cards.


4. Credit
   
   Allowing customers to pay with a credit card is a must. By not doing so you can drastically decrease your sales. In order to allow customers to use credit cards you have to open a credit card merchant account, which can be done through your bank or a merchant account provider. If you have good credit, it should be smooth sailing. If you don't, then you may end up paying a security deposit to open the account. The nice thing about credit cards is that payments can be accepted online, in person, over the phone or by mail. They can also be made in installments. Of course there are expenses involved? application fees, purchasing of processing equipment, administration and statement fees, and processing and transaction fees.


5. Online
   
   Online payment services are drastically increasing in popularity. They're quick, easy and overall very convenient for any consumer with an email account. They also allow funds to be directly deposited into your account. You can employ one or various online payment services, but PayPal is one of the more common providers. It offers personal and business accounts, but you have to open a business account to be able to accept credit card payments.

One thing to emphasize when it comes to payment methods is your payment terms. They should be clearly established and cover topics such as deposits, extending credit and progress payments. Your payment terms should be printed on payment communications like invoices and account statements.

Sooner or later you will inevitably be forced to deal with late payment or nonpayment issues. For such cases you'll need to consider late-payment fees and what your course of action is when non-payment occurs. Start by sending letters, emails or telephone calls, whatever it takes to get your money (without threatening the customer of course). If all else fails, you can always take the customer to small claims court.