Business administration tip 2: Cash is king
Updated: Mar 24, 2021
Without cash in the bank you have no business.
You can't afford to pay workers, suppliers, or yourself.
So it is vital to keep on top of your customer invoices.
Five or six years ago, a builder converted part of our garage into a utility room.
We paid half up front and away the builder and his team went.
And a great job they did too.
Two months after the project had finished I suddenly realised he'd not invoiced us for the second half of the job.
To be honest, this moment of clarity only occurred when I was out in the car and I happened to drive past his van. Because I was driving, I soon forgot.
It wasn't until eleven, yes ELEVEN ... months later, that the builder emailed me with a very brief apology and the outstanding invoice.
This particular builder may have been going through some good times and so became all consumed with work that he simply forgot. But this is a dangerous habit to get into.
What happens when work dry's up, and every penny counts? Forgetting to invoice customers is no longer an option.
So, here's something that will help:
Decide when to invoice. Instead of waiting till a specified date to send out invoices, you may want to send them out right after a project is finished, or service rendered. This is important for cash flow. Usually, the best time to invoice is as soon as you have delivered to your customer. They will be expecting the invoice and likely to turn payment around faster.
For some businesses, however, a monthly contract or retainer requires a single monthly invoice, whilst others can be done alongside the work. Knowing when you are going to invoice helps you to see when payments might come in and improve cash flow.
If you get into the good habit of invoicing quickly after the job is completed, or upon the specified date, you'll find cash flow is smoother and more predictable.
P.S. Don't forget to go refer back to the other business administration tips in this series.