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Managing Cash Flow for Small Businesses

Managing Cash Flow forSmall Businesses
From Matt Chizek, Assistant Vice President

I recently joined Iowa State Bank as the newest member of the lending team. As an Emmetsburg native and Iowa State University graduate, I’m happy to be part of such a progressive community bank as Iowa State Bank. My wife, Rhiannon, and our two children are thrilled to be back in north-central Iowa, surrounded by family, farms and friends.

As I work with commercial and ag customers, I ran across these tips that I thought might be helpful to you. As we know, cash flow is complicated, but it’s something everyone must manage daily. So, here are a few tips:

  1. Invoice for 50 percent at the beginning of each project – If you provide estimates, add a clause stating half of the price, when approved, is due up front. Then, remember to issue follow-up invoices for the balance of the estimate – and do it promptly.
  2. Offer discounts for early payments – Some companies offer their customers discounts of up to three percent on their invoices if paid within 10 days of the invoice date. This reduces the float in time between invoicing and when you receive the check.
  3. Charge interest on balances outstanding longer than your monthly invoice period – Nobody likes to pay 1-1/2 percent on top of their billed charges, and most customers will pay within 30 days to avoid paying high interest charges.
  4. Ask customers to pay you electronically – Allow customers to pay you through Electronic Funds Transfer. Consider paying your bills as well through our eCorp Business Banking product . Ask me for information.
  5. Open a business line of credit – To help provide a cash cushion in especially tight months, speak to your banker about the benefits of a business line of credit. You’re only charged interest on what you borrow, and once you build up your bank account, you can pay the bank back.
  6. Track your receivables – If any of your invoices are 30 days or older, call the customer’s Accounts Payable department and ask where your invoice is in their payment queue. In some cases, the invoice may have never gotten to them, and they usually pay it promptly.

In general, it’s important to keep your cash flow healthy. Too many accounts receivable can challenge your ability to keep suppliers and avoid high interest charges on goods purchased via credit.

If you’d like to talk more about our cash flow solutions, or just catch up, please feel free to contact me – I’d love to hear from you!

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