May 29 2012
In a small business, cash is king. You can be a very profitable company and still get choked by a lack of funds. When money is tight, your first thought is probably to get a small business loan or line of credit. While borrowing is an obvious choice, there are a few other often overlooked ways that your banker can help you “max the cash.”
1. Use Your Line of Credit Wisely
Make sure you are only using your line of credit for short-term purposes. Using it to buy equipment, for example, is a sure way to strangle your business. Instead, get a term note for immediate equipment purchases or get a separate line of credit for equipment purchases that you may make over the next year.
2. Use ACH Electronic Payments Instead of Checks for Vendor Payments
Most vendors will gladly accept electronic payments. That means no more checks to write, no more envelopes to stuff, and a big drop in your postage expenses. The cash flow benefit comes from you controlling the exact date on which the cash comes out of your account so you can keep your cash in your account as long as possible.
3. Ask Customers to Pay You Electronically
Many customers will welcome the opportunity to reduce their check writing costs, and you will have more predictable collections. No more waiting for the post office to deliver your mail because your customers will send their payments directly to your bank account. As an added security precaution, set up a separate collection account with an ACH debit block or filter. That way, only deposits will be accepted into this account, which mitigates the risk of many people knowing your account number. You can then transfer funds from this account into your operating/disbursement account as needed.
4. Use Remote Deposit Services
For those collections that still come in by check, you can add a remote deposit service to accelerate your deposits going into your bank account. And, since you can make deposits from the comfort of your office until late in the day, well after the bank is closed, you can get your funds into your account much faster.
5. Accept Credit Cards from Your Customers
You already know this if you’re a retail business, but any type of business, including manufacturers, service companies, wholesalers, etc., can benefit from accepting credit cards. Yes, it will cost you a nominal percentage to accept credit cards, but the benefits of quicker collections will likely outweigh the cost. Read Mark Sanchioni’s previous blog post about how accepting debit and credit cards can improve your cash flow.
There are many ways your banker can help your business, and one of the most important is helping us to understand your cash flow cycle. We can make specific suggestions on how to get more green flowing your way, and have a variety of tools to help. Is your bank helping you by taking the time to learn about your business and making suggestions like this?