Why do so many small businesses overlook these simple ways to improve cash flow?

The ideas are recommended by Pam Newman, a Certified Management Accountant:

1. Cash and carry. Consider operating a cash-and-carry-type business — as much as possible — instead of worrying about receivables. Since invoicing and collections take up valuable time and resources, you offer financial incentives for customers who pay immediately. Just be sure to set the ground rules in the beginning so your clients know what you expect.
2. Prompt receivables collection. Any accountant can tell you that the longer your receivables are outstanding, the less likely you are to collect. A good rule of thumb is that you should always have a due date on the invoice and then send out a follow-up statement within 10 to 30 days from the due date, depending on what’s usual for your industry. If you haven’t received payment within 45 to 60 days of the due date, then a phone call should be made to follow up with your customer. Accounts that go past due 90 or more days should be taken to the next level of collections with an outside agency or an in-house collections specialist.
3. Vendor negotiation. Lots of vendors have payment terms that allow you to delay the payment until end of the month or maybe even up to 60 days. This allows you a little float time until you receive payment from your customers.
4. Customer deposits. Have your customers pay a deposit prior to the start of the job — usually at the time a contract is signed. You can also implement periodic payments throughout the contract vs. a single payment upon completion of the project, so that cash is flowing in consistently.
5. Revolving credit line. This is especially useful if the amount of savings from prompt-pay discounts is greater than the financing charge from the lender, or the lender’s financing charge is less than what your vendors might charge for late payments. This helps give your business a safety net so that you can continue to operate during those times when you are offered great specials if you buy today but may not have extra cash available.
6. “Rainy day” fund. Establish a savings fund to help you operate through slow times. Most businesses have swings in their business flow, and managing cash effectively can be a challenge. Store away extra during the good times to cover you during the slow season. This sounds easier than it is, but if you take out a percentage each month and transfer it to a savings account, then it will be “out of sight and out of mind.”