Monday, January 27, 2014 - 12:35

Guest Blogger: Michael Lewis

Michael Lewis is a former business executive who shares tips related to small business, entrepreneurship, and organizational behavior.

Small business owners contend with a host of problems every day - producing products or services cost-effectively, increasing sales, satisfying unhappy customers, and motivating disgruntled employees - and they quickly learn that most of these problems can be solved with cash. Cash flow is the life-blood of an organization, its means to pay salaries, buy supplies, and make investments in infrastructure. Owners who cannot efficiently manage their business cash flow are almost certain to fail. Those who can are able to improve nearly every aspect of their business.

Tips to Improve Cash Flow

Converting sales into cash as quickly as possible, while reducing and extending your payments to build a cash cushion, is the basis for long-term, sustained growth, whether your company is large or small. Implementing some or all of the following suggestions can help boost your cash flow.

1. Anticipate Future Needs

Avoid surprises. There is nothing more difficult or disheartening than searching for cash when you're desperate. To start, keep accurate, timely accounting records as they are essential to understanding your business's financial standing. Use your past monthly income and cash flow statements as well as your balance sheet to calculate available cash and project likely results for the next three to six months. These pro forma statements can help alert you in advance of any shortfalls, giving you time to prepare for them.

Some business owners, anticipating a future need, open a relationship with a bank for payroll and general company accounts and regularly supply the bank officers with operating statements in order to build trust. Depending upon the authority of the bank officer, however, these efforts are not always successful. To improve your chances, notify your banker that you are eventually going to seek a loan, making it clear that the intent of the relationship is to have access to financing if needed.


Cash Flow

2. Build Connections With Lenders

The odds of being able to borrow cash or entice investors to put more money in your company when you absolutely need it are low. Bankers are least interested in lending to a company in desperate straits since their first objective is to be paid back. Build connections in the financial community before you need its help, not when you need it, and you may be able to secure a commitment of future loans. Bankers generally make secured loans on such assets as the following:

  • Accounts Receivable. Typically established as a revolving line based upon a percentage (60% to 80%) of total accounts receivable (AR) due within a 60 to 90 day period, accounts receivable financing is one of the most common corporate loans. The balance due moves up and down as AR varies: When sales and AR increase, the bank advances more cash on the line, when sales and AR decrease, you are expected to make a payment to bring the loan in line with the negotiated loan-to-AR ratio.
  • Inventory. Lenders generally like inventory as it is expected to be sold and turned into cash. Bankers generally prefer finished or raw inventory since it is most marketable in the event of default - many do not lend on in-process inventory as additional investment is required before it can be sold. Like an accounts receivable loan, an inventory loan moves up and down as inventory levels change. A typical ratio of loan to inventory is 50%.
  • Equipment. While technically not a short-term loan, owned equipment in good condition can secure a fixed-term loan for a single shot of cash in an emergency. Remember, however, that the more specialized the equipment, the lower loan-to-value ratio you may receive. For example, a 2012 Ford 150 is likely to have a higher loan ratio than a variable drill press or a customized trailer. If you have old or excess equipment that is marketable, sell it for cash - having extra cash is more valuable than an idle asset.

Some business owners elect to sell their accounts receivable to a third party rather than borrow on them, a process called factoring. Specific terms are negotiated between the third party, or "factor," and the company, including the ratio of value paid for each invoice, whether the sale is "recourse" or "non-recourse," and any fees which might be paid to establish and maintain the relationship between company and factor. The advantage for a company, especially if it is newly established or has damaged credit, is that the factor looks first to the creditworthiness of the customer who owes the money, rather than the company which sells the AR.

3. Keep Your Cash Working

Keep your cash balances in interest-earning accounts, which are available at most banks. In some cases, you might encounter a minimum balance requirement. However, since interest rates on these accounts are often lower than those of savings accounts, certificates of deposit (CDs), or money market accounts, consider keeping the bulk of your funds in higher-paying accounts, then transferring funds to meet the minimum balance requirement in your interest-bearing checking account (plus the total payments due that week or month). Avoid long-term certificates of deposit, which lock you in for a specific period of time, since redeeming them early may cost you interest. Either invest in penalty-free certificates or that portion of funds which you are not likely to need during the life of the CD.

Set up a separate payroll account and establish a bi-monthly cycle. Bi-weekly payroll systems require 26 pay cycles a year, bi-monthly only 24, which means they save the extra administrative costs of collecting, verifying, and tabulating payroll information. Require your employees to take direct deposits to reduce the costs of writing and delivering checks. Finally, transfer payroll funds immediately before payment to keep your cash earning interest.

4. Train Your Customers

As a small business owner, your goal is to collect payment for your services or products before or shortly after incurring the expense of producing or delivering them. The optimal outcome is to receive payment on delivery (COD), but that is not always possible. Invoice your customers the day you deliver your product with the notation that "payment is expected on invoice receipt." Don't suggest that waiting until the end of the month is an option. Include a notification that interest is charged for all payments later than 30 days and collection procedures may be initiated. Also, stay on top of your accounts receivable aging - a report categorizing accounts receivable according to the length of time invoices have been outstanding - with an established process for following up with late or delinquent payers:

  1. An initial form letter 10 days following receipt asking for payment.
  2. A second follow-up letter - more aggressive - in 20 days demanding payment.
  3. A third letter in 30 days and a phone call from your collections clerk seeking payment.

It is important to have early contact with potential delinquent payers and to offer a variety of options for payment if they have difficulties. These options might include a credit card charge or a payment plan. Be careful about instituting a policy of discounts for early payment since big customers are likely to delay and take the discount at the same time. Remember, a customer who doesn't pay isn't really a customer, but an expense. Determine how you want to handle late or non-pays before they arise, document your decision into policy, and stick with your policy.

5. Work With Your Vendors

Just as you want customers to pay you, your vendors want payment as soon as possible. However, early payment to vendors can hurt your cash flow and should be avoided if possible. Delay payment as long as you can while remaining consistent with the terms of the sale. If there is no penalty for late payments, set a pay cycle of 45 to 60 days from receipt of an invoice. While slowing the outflow of cash is important, it is equally important to maintain a good credit rating and cordial relations with critical vendors. Be aware that slowed payment might result in contact from the vendor that has been affected. In those cases, be vigilant that all future payments are as promised. If you are forced to delay payments, contact the vendor as soon as possible with an explanation and a plan to become current on your debt.

6. Maximize Cash Inflows

There are a number of methods to increase cash flow, especially if you sell custom products or engage in extended contracts. Require security deposits equal to 50% of the order if the product or service is unusually large, complex, or one of a kind. If you work with contracts, set up payment schedules and amounts that parallel or exceed your sunk costs. If your customer demands modification of standard products or services that have not been identified in your contract, seek additional payment through fees or change orders.

Small businesses which provide a regular service or product should consider subscription sales whereby customers prepay. Newspapers, magazines, cable television, landscaping, and pool maintenance are examples of products and services which lend themselves to a subscription model. In addition to receiving upfront cash to cover future costs, you have the advantages of securing future sales and easier resource scheduling.

As another option, layaway programs have come back in vogue as an alternative to sale and payment plans. A layaway program allows customers to select a specific product, which is then reserved for a future purchase and delivery when payment has been completed. This allows the seller to have use of the cash prior to incurring the product's cost. Special accounting treatment of the cash received is required, so be sure your accountant is aware of the program. Consider taking credit cards to ensure timely and probable payments, as well. If you elect to do so, raise your prices to compensate for the extra costs and give those customers who pay cash a discount equal to the fee that would be paid for a credit charge.

7. Shrink Cash Outflows

The combination of cutting or avoiding expenses overall and delaying payment as long as possible reduces demands on cash. Strategies to reduce cost include the following:

  • Repair Capital Equipment, Don't Replace It. Save money by having a regular maintenance program, using reconditioned replacement parts from third-party suppliers (rather than factory parts), and contracting with a local repair facility to handle jobs too big or complex for in-house personnel.
  • Buy Used Equipment. Used equipment in good condition is generally just as good as a new piece of machinery. Search local advertisements and auctions in your area, specifically looking for companies whose assets have been foreclosed and are being sold by a lender. You may be able to buy quality used equipment for savings up to 80% without a comparable degradation of capability.
  • Delay Product Upgrades Until Absolutely Necessary. Delay product upgrades and consider open-source software, which is generally free or available for a small donation. Any software you use should have a focus on safety and security, which should always come first for any business.
  • Barter Products For Supplies and Services. Suppliers who are also customers might be interested in a "trade" whereby each company receives all or a portion of its respective payments in the form of finished products. Since the exchange value is usually set at each company's respective retail price, a barter agreement effectively provides a "discount" equal to the net profit margin on your product and allows you to maintain cash that would otherwise be used. From an income tax perspective, be sure to report the products you receive from your suppliers as gross income in the year of receipt, while expensing the products or services you provide as a "cost of goods."

Final Thoughts

Small business owners usually learn two principles early in the life of their companies. "Cash is king" refers to the importance of cash in any company, and the Golden Rule - "He who has the gold makes the rules" - the validity of which is apparent to anyone who's gone hat-in-hand to a lender. Building and keeping an adequate stockpile of cash provides maximum opportunity and flexibility to any business while enabling its owners to sleep soundly at night.


Have you suffered cash flow problems? How did you resolve the deficit?

Thursday, April 25, 2013 - 08:25's Fast-Growing Business Payments Network is Converting More Than 40% of Customer Payments to ACH is the Only Company Helping SMBs Change Their Check Payments to ACH By Automating the End-to-End Cash Flow Management Process

PALO ALTO, Calif.— April 25, 2013 —, the leader in integrated bill payment, invoicing and cash flow management solutions for businesses, today announced that it is converting more than 40 percent of customers payments from check to ACH, meaning is the only company making ACH—commonly known as ePayments—adoption a reality for small to medium sized businesses (SMBs). is achieving this feat by going beyond single ACH transactions and automating the end-to-end cash flow management process, connecting people, documents, payments and accounting systems.

Today, more than 80% of transactions between U.S. small-to-medium businesses (SMBs) involve paper invoices, paper checks, or manual reconciliation, resulting in costly inefficiencies and errors. is turning this paradigm on its ear. is the first platform to digitize the whole process, integrating electronic payments seamlessly with accounting software and digital documents.  

Read More

Friday, March 1, 2013 - 14:08

no check ceo|bill.comBy Lisa Lang, SVP Marketing

Did you know there’s a whole new generation of CEOs and CFOs who run paperless businesses and insist on electronic payments instead of paper checks? They have no patience for time-consuming, paper-based processes that drag down everyone’s productivity. They’ve been endowed by game-changing cloud-based technology with certain inalienable rights, such as:

  • Freedom from their desks. “No Check” CEOs aren’t tied to their offices, but free to manage their companies from wherever they need to be, with instant, real-time access to their business and financial data from anywhere, 24 hours a day.
  • Freedom from bill-payment hassles. They simply scan, fax or email bills and associated documents to a cloud-based service, manage the approval process online, and make payments electronically.
  • Freedom from receivables worries. “No Check” businesses rake in their receivables 2-3 times faster, thanks to e-invoicing, automatic reminders, and online customer payments deposited directly into their bank accounts.
  • Freedom from cash flow uncertainty. “No Check” CEOs and CFOs get precision control over cash flow, by projecting receivables, payables and balances up to three months out, revealing potential problems well in advance.
  • Freedom from check fraud. Unlike checks, electronic payments can’t be intercepted or modified. And unlike paper documents, electronic data can be protected with enterprise-level security systems.
  • Freedom from paperwork. Some “No Check” businesses don’t even have file cabinets, because everything is digitized and stored online for secure access from anywhere, any time – so no need to save and store paper receipts, purchase orders, contracts, check stock or paper invoices.
  • Freedom to reduce operating costs. Eliminating paper not only reduces processing costs for payables and receivables, digital access enables better cost controls through improved visibility. Getting rid of time-consuming paper-based processes also increases productivity for everyone.

Ready to become a “No Check” CEO? It’s as simple as moving your business processes from the manual, paper-based world to the cloud, via services such as

Monday, January 7, 2013 - 08:37

As an entrepreneur, one of the best parts of your job is coming up with great new ideas. And, working in the technology industry, some of the most fun comes each December when you are inevitably asked to speculate on what great new strides our industry will make in the coming year. While I don’t own a crystal ball, I do have a lot of years in Silicon Valley under my belt. So I feel confident that at least some of my predictions will come true this year. Without further ado, I give you my top ten predictions for 2013:

  1. Social media will weave itself into the everyday lives of people, especially businesses, in a more pervasive way than ever before.  I know this may seem obvious, but it is worth saying: social is going to become more ingrained this year than you ever thought possible.
  2. Businesses will have to find ways to be more efficient with less, especially given the slow economic growth and the expected minor inflation in Q4 of 2013. This means more cloud services, which are known for reducing costs, will be utilized and developed.
  3. Mobile will firmly insert itself into the everyday life of businesses.  Businesses will expect more  apps on their phones that take care of business.
  4. Desktop accounting software will continue its decline. In fact, the decline will speed up as the benefits of cloud (social and mobile in particular) become expected.
  5. The iPad mini will accelerate the ebook revolution.  Because of this, many more magazines will stop their paper versions, especially vertical publications.
  6. Investing in social will drop dramatically because social simply cannot be monetized as a standalone product. Instead, companies with real business models will pick up the social and mobile mantle.  
  7. Our society will become more and more paperless, and the products that make this happen will grow faster than other businesses.
  8. There will be more collaboration across companies.   Faced with economic constraints, companies will learn to use the cloud to easily leverage each other’s innovation and intellectual property  The result will be better businesses and better solutions.  Companies will come together to solve big business problems. And hopefully this spirit of collaboration will even carry to D.C.
  9. ePayments will become standard business practice, not just because of the paperless benefits mentioned above but because ePayments help people work smarter and faster.
  10. 2013 will be the year of the business payment network. Credit cards will be a thing of the past as a new generation of ePayment-fueled business payment networks emerge. I will share more with you on this prediction shortly so watch this space.

So, there you have my list. If only half of these predictions come true, we will see major advancements in 2013. I’m looking forward to another exciting year and is committed to helping drive the innovation needed to make the promise of the cloud a business reality for financial professionals everywhere.René Lacerte, CEO and Founder,

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