Positive cash flow is obviously critical to the growth and survival of any company. With technology ever-advancing, professional services firms are tasked with refining sales processes, improving transparency, streamlining core operations, and maintaining flexibility when forecasting strategic moves in order to thrive. Without positive cash flow, none of that is possible. Here are ways to increase cash flow for a financially healthy business.
Invoice for Completed Work as Soon as Possible
The terms in your contracts with clients should include progress payments in accordance with reasonable milestones. This offers a sense of financial protection for your clients while ensuring your firm remains cash-flow positive. If you’re working with a repeat customer on a new project, you may be able to bill for more up front. After all, you want to turn your services into cash as soon as possible. Just be sure that your receivables department aligns with your payables department. You want to be sure you are billing your customers at the same rate your vendors are billing you so that the money coming in covers or exceeds the money going out.
Use Project Accounting Software for Accurate Billing
Invoices that contain errors need to be re-issued, which is time and money lost, or at least delayed. Delayed money can disrupt your collection cycle, and you run the risk of looking unprofessional to the client. You can use project accounting software, which allows for reviewing and editing details prior to approval, to eliminate rework and catch any errors. This ensures that the customer receives an accurate invoice they can quickly approve, which translates to quicker payment for you.
Optimize Team Utilization
An underworked staff equates to lost money, so be sure every employee is valuable and needed. Also think about cross-training staff and hiring contractors who have variable-based compensation arrangements. Both of these moves will help to keep payroll costs under control. Finally, no matter how swamped you are with projects, it’s important to stay the course on your sales and marketing plan. Putting a pause on sales and marketing efforts even for a short period of time will have negative consequences for your cash flow down the road.
Aim for a Mix of Small and Large Contracts
Large contracts are a boost for your bottom line, but they don’t come without issues. Payment timelines get drawn-out, contract requirements increase, and resources are stretched. There’s no denying that large contracts can be game-changers, but smaller contracts will sustain your business, especially when you can retain repeat customers and apply standard processes.
