One of the principal rules of commerce is to protect business cash flow against outstanding invoices and bad debt.
Falling into the cash flow trap can be easy.
Still, if you follow some simple rules, you can ensure that your business always has a healthy supply of liquidity to facilitate your day to day operations and future expansion.
Know your break-even point
Knowing exactly where and when your break-even helps your operating cash flow because you know exactly where you stand before making a trade.
When you set an early goal for your business, you know exactly what you are striving to achieve, which helps you predict and protect your cash flow in both the short term and long term.
In the meantime, you can focus on what is important, which is your day to day business operations.
Focus on cash flow management, not profits
Picture this situation. You have projected a profit on your yearly balance sheet, but the cash you received in a given month was not enough to cover wages, rent and other expenses.
No positive cash flows are coming in, and you have zero working capital.
How are you going to get through the month?
Profits are important, but you cannot do business unless you factor in the positives on your cash flow statement.
So focus on the two together, and your business and cash balances will always be healthy.
Always keep a cash reserve
It would help if you always kept something aside for a rainy day.
At some point, all businesses will experience a cash shortfall over a period of time.
Always keep aside an amount of money to protect business cash flow and get through these shortfalls.
By keeping a decent amount of cash in reserve, you can pay off bills or wages while your business is waiting for payments to drop in.
Keep a cash flow Worksheet
Whether you write down the net income from a week’s trading or pull together an excel or Google worksheet, it’s essential to track what is happening with incoming and outgoing payments.
Think of it as your own business’ weekly financial statement.
By monitoring what is coming in and what is going out, you can ensure that you protect your business cash flow.
Extend payment terms as long as you can
Applying what we have advised so far, you will see a pattern emerging.
First, it’s all about financial flexibility.
If you negotiate good payment terms, you give your business an extra edge.
If you have a good inbound flow from financing activities, you should always consult your income statement and cash flow chart and pay things off early if you can.
Incentivize customers to pay you faster
You can use many creative approaches to get your clients to pay you faster.
Offer discounts for early payment or a small bonus on what you deliver in terms of products or services.
Give back some added value if they pay you on the spot.
You would be surprised what other business owners will do if they are getting a better deal.
Set credit standards
Although you should always try to extend your payment terms, try and limit lengthier payment terms for incoming.
You should always set a strict standard for determining credit eligibility, and you should enforce it.
Do not make credit automatic. Instead, make it a privilege for customers that pay on time regularly.
Collect receivables as soon as you can
The longer payment goes unpaid, the harder it is to get it.
So make sure that you chase up outstanding invoices.
Remember that this is money owed to you, and if you don’t protect business cash flow, you are putting your establishment at risk of going under.
Include an arbitration clause in your contracts to protect business cash flow
Having an arbitration clause in your contracts will allow you to file claims for money owed to you at a fraction of the price and much more swiftly than a Civil Lawsuit.
Online arbitration is a form of online dispute resolution.
The rules of arbitration and the process are simple.
If a clause is included in a contract, a plaintiff can file against a defendant online using a dedicated platform.
Brief is the online arbitration market leader.
Their platform is 100 percent online and is cheaper and quicker than traditional brick and mortar arbitration institutions.
Brief turns around a typical arbitration claim in 45 days, compared to 410 days in traditional arbitration.
A typical claim will be 80 percent cheaper than traditional arbitration and will typically cost you no more than $1,700.
With an arbitration agreement in place, you can get the money you are owed and put it back into your business, where it belongs.
Brief makes it easy with its process involving six easy steps. First, you upload your claim and any supporting documents and evidence, and the defendant submits their counter-evidence.
If they do not do so within the stipulated time frame, they will find themselves in default, and an award will be made against them.
If they contest the claim, an impartial EJudge is assigned to decide the claim, and if they rule in your favor and you prevail, a final and binding arbitration award is rendered.
This can be filed in a state courthouse to be reduced to an enforceable judgment. (Binding awards are issued if the agreement calls for a binding award.)
The entire process is managed on its proprietary online platform, from filing a claim to discovery and a final decision.
The question is: Do you have the correct arbitration clause in your financial contracts, if any at all?
Download Brief’s clause builder now
Brief makes it easy with its clause builder platform. Of course, each contract and deal is different. But essentially, dispute resolution clauses should have the following (or similar) text included: “The parties to this contract hereby agree to resolve legal disputes exclusively through binding arbitration”.
The above text means parties agree that arbitration will be a legally binding process that can be used if a dispute arises.
Brief offers a free-to-use arbitration clause example that you can customize to suit your needs.
The arbitration clause sample comes in both long-form and short-form.
Including an arbitration clause or provision in your contracts ensures that you are serious about collecting unpaid debt and leaves no room for confusion.
Are you ready to recover what you are owed?
Brief has helped small and large businesses across the United States recover debts and claims that were not worth the cost of traditional litigation or arbitration if not for online dispute resolution.
Register now on our online portal. If a dispute arises, submitting your claim is a simple process, all for a flat upfront fee.
Satisfied and repeat participants include electronic commerce sites (Fintech), factors, banks, MCAs, and other lenders.
Brief also handles all types of monetary disputes and declaratory relief actions such as quiet title, coverage claims and warranty claims.
Our screened network of Ejudges spreads across all 50 states, and each case is matched to the jurisdiction and subject matter expertise of the Ejudge.
You can request a demo from our homepage or call one of our arbitration consultants today on tel: +12134443794. Alternatively, drop us an email at [email protected] to book an obligation-free consultation.
Brief is a market-leading online arbitration platform in the United States. Our 100 percent online alternative dispute resolution platform helps businesses protect their contracts and agreements through online arbitration. Follow us on LinkedIn or Facebook for updates and news about online arbitration and more.
*Brief cannot and will not give legal advice on any matters, financial or not.