A couple of months ago, President Obama announced a new White House initiative, called “Supplier Pay,” which is meant to encourage big corporations to pay their small business suppliers more quickly. Ever since the Recession, small businesses have had to wait longer for their larger customers to pay their bills with billing cycles stretching from 30 days to 60 and even 90 days after an invoice is issued. Such a long delay can take a heavy toll on a small business’ cash flow, often with painful results: they may be forced to cut into their profit margins by borrowing costly money, business growth can be stunted, and in some extreme cases, a business can even shut down completely.

Get paid faster in your businessWhether or not your small business works with big corporate clients, when your customers take a long time to pay, it can wreak havoc on your whole business. Though many small businesses owners tend to focus on sales and net revenues, without an adequate supply of available capital, you’ll spend a great deal of time and effort scrambling around to cover the cost of necessary supplies, inventory, payroll, and other typical operating expenses. This can lead to anxiety and pull you away from focusing on other, more important aspects of running your business.

So, what’s the solution? Here are five tips that any business owner can follow to significantly improve the cash flow within a business while trying to preserve customer relationships and remaining competitive.

1. Be clear about your customers’ payment patterns. Getting paid quicker starts with fully understanding your target customer. This may sound simple enough, but I’m amazed at how many businesses overlook this one vital step. When you consider your target market, what is the typical length of payment among these individuals, businesses, or groups? How do they prefer to pay? What potential obstacles get in the way of their ability to pay? Will certain value added products or services shorten the billing cycle? You need to be able to answer these questions and then you can begin to structure your business accordingly.

2. Be clear about how much cash flow you need to operate. As a business owner, you owe it to your business to be in touch with the flow of capital coming and going out of your business. You should therefore first learn how to read a cash flow statement. But above that, you should also be aware of and have a plan for your business’ essential, non re-occurring expenses, such as big equipment purchases or property upgrades. Once you are clear about your customers’ payment patterns and your business needs, you can structure your payment collection policies accordingly.

3. Walk away from no-pay and extremely slow-pay customers. I know it’s hard to turn away potential sales. But, at the same time you want to generate the kinds of sales that will actually pay your bills with the least amount of headache. If you extend credit in your business, you need to establish a set of criteria that will help you weed out the good (i.e. profitable) customers from the bad ones. You also need to set reasonable time and amount limits on this credit. Again, this will go back to being in touch with the operating needs and flow of your business as well as your customers’ needs and payment behavior. If this is hard for you to figure out on your own (and for most business owners it will be), then make sure to consult with a qualified professional, such as a CPA.

4. Look for creative ways to get customers to pay quicker. There may be many small things that you can do to encourage your customers to pay quicker. For example, you can offer your best customers a small discount if they pay right away or require that clients make a down payment before any work is completed.

5. Look for other ways to generate cash flow. Another option is to open your business up to a slightly larger target market that includes those customers that tend to pay quicker. You can do this by adding another product or service, tweaking an existing one, or simply directing part of your marketing efforts to this new group. This can help you generate needed cash flow, while allowing you to keep your bigger, slower paying customers.

Over to you… What strategies do you use in your business to help ease the cash flow crunch caused by slow paying customers?