Slow Payments Negatively Impact Small Businesses
Maintaining a positive cash flow is critical for small businesses. Slow payments will interfere with a business’s ability to invest in their own growth. Organizations should invest in e-invoicing systems to receive payments more quickly.
The term cash flow is used to describe the net change in a business’s cash position between two periods. Cash inflow is cash that comes into a business in the form of payments received while cash outflow is cash that goes out of the business in the form of payments made. If the amount of cash coming into the business is higher than the amount going out, the business is said to have a positive cash flow. When more cash is going out of the business as compared to coming in, the business has a negative cash flow. The financial health of a business is closely tied to its cash flow (Neil Kokemuller, IMPORTANCE OF CASH FLOW TO A BUSINESS, n.d.).
Maintaining positive cash flow is essential for optimal debt management, growth, expansions, etc. Cash flow is particularly important for small businesses. A negative cash flow will hamper a small business’s growth. Such businesses do not have extensive reserves that they can rely on when they are strapped for cash. A few reasons why cash flow is important for small businesses are mentioned below.
Cash VS Billing
Billing amount is not the same as cash. Small businesses need to realize that they cannot operate by looking at their billed figures. Payments may come in 45, 60 or even 120 days after the invoice is due. Slow payments means that even though you have billed customers for a certain amount of don’t actually have that money to spend. This can have a very negative impact on daily operations and a business’s ability to get a load. Small businesses should follow up with customers as soon as invoices become due. Another way to deal with slow payments is to sign up for an efaktura system. Offering early payment discounts can also encourage customers to make faster payments (Moira Vetter, HOW MUCH DIFFERENCE DOES ACCELERATING RECEIVABLES IN A SMALL BUSINESS REALLY MAKE? 2016).
Debts are a commitment on future cash flows. This means that when a business takes a loan to purchase equipment, a building, materials, etc, it is committing its future cash flows to repaying the debt. A positive cash flow is hence essential to manage a business’s debts. Slow payments can cause a business to get off their repayment track.
A positive cash flow will give businesses the confidence and ability to invest in their growth. The cash can be used by businesses to invest in research, renovations, training, etc. Strong cash flow also give’s businesses the ability to dynamically react to emerging situations. Businesses will have the capacity to make decisions that are best for them in the long run.
One company that helps business improve their cash flow by integrating efaktura programvare is Basware. More information can be obtained from their website.