Businesses need to maintain positive cash flow if they wish to grow. That’s because when the cash flow rivers runs dry, organizations can struggle with meeting payroll, paying bills and acquiring materials, supplies and other inventory.
Though all small business owners understand the importance of cash flow management, 64 percent of them still struggle with it—primarily due to the fact that they’re forced to wait around for late payments.
According to a recent analysis of 20 million invoices by Fundbox, nearly half of all Net 30 invoices are paid late, while 45% of Net 60 invoices and 35% of Net 90 invoices are as well.
And believe it or not, these organizations are not only waiting on payments from fellow small business owners. Companies like Walmart (86 days on average), McDonald’s (64 days) and Apple (41 days) are all taking their sweet time sending payments over to small businesses.
While late payments affect all industries, according to the analysis, those in cleaning services, accounting/bookkeeping, web design, landscaping and construction are most likely to be paid late.
Does your small business routinely wait on late payments?
If so, it might be worth reexamining how you begin relationships with new clients, making changes to reduce the likelihood they’ll fall into the habit of paying late in the first place. Here are three ways you can do that:
- Don’t agree to work with any old client. If you suspect a prospective client might cause you all kinds of trouble down the line, don’t start working with them in the first place. Run a credit check or ask for references right away to weed out bad businesses.
- Always sign a contract. That way, everyone knows exactly what is expected of them. Contracts are legally binding, so you’re protected in the event things get messy.
- Request a payment up front. It’s not uncommon for contractors to receive partial or even full payments before getting to work. Don’t be shy to ask.
Cash flow problems are pervasive in the business world. But with the right approach to business and the right tools at your disposal, you’re much more likely to avoid them in the first place.