5 Steps to a Healthier Cash Flow in 2016: Consider Your Pricing & Invoicing Plans

Author: Justin Reynolds | December 1, 2015

In our last installment in this series designed to help small businesses overcome their cash flow problems, we encouraged business owners to shop their suppliers and vendors to see whether they could save money finding new ones.

This time, we shift our attention to pricing and invoicing.

Though most business owners likely understand the importance of healthy cash flow, many of them still encounter cash flow problems. The good news, however, is that small businesses have much more control over their cash flow than they might think.

Let’s take a look at how changes in your approach to pricing and invoicing can help improve cash flow.

If you’re having cash flow problems, take a look at your pricing: When’s the last time you increased the costs of your products or services? If it’s been quite some a while, ask yourself whether it makes sense for you to boost up your prices a bit in the near future.

While you might not necessary want to raise your prices, doing so is a necessary part of business. Companies do it all the time. Just think about how much a cup of coffee cost 10 or 20 years ago and how much one costs now.

Maybe you’re worried that if you increase your prices, you’ll scare your customers away. While it’s true some customers might be put off by higher prices, paying more over time is just a fact of life. Landlords raise rent. Cable companies increase the cost of their services. Tickets to events become more expensive.

To reduce the likelihood you’ll discourage customers from continuing to support your business after you raise prices, consider the following:

  • Don’t raise prices until you’re confident a majority of your customers are fully satisfied with your products and services.
  • Offer something extra to go along with prices increases. For example, a managed service provider could accompany price increases with additional storage space or more comprehensive support packages.
  • Never underestimate the power of “free” stuff. It might be worth your while to institute loyalty programs, offering your customers something like a buy-10-get-one-free deal.

The above is by no means a comprehensive list, but hopefully it helps you understand that price increases don’t automatically discourage customers.

One of the main reasons small businesses suffer cash flow problems is because their customers don’t pay their bills on time. If you find yourself routinely dealing with net 90 or worse, consider changing your approach to invoicing altogether.

For example, if you wait until the end of the month to invoice your clients, you may want to start invoicing them the moment you’ve completed the work or shipped the products. At the very least, this could accelerate payments by a few weeks.

You can also choose to incentivize your customers to pay early by offering small discounts. Try giving your customers a 2 percent discount if they pay their bills within 10 days of receipt. What do you have to lose?

In our next installment in this series, we’ll focus on ways small businesses can leverage modern technology to reduce their costs and improve their cash flow. Stay tuned!

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