Cash flow is essential to keeping your home services business thriving, not just surviving. Think of your cash flow as the seed that helps your business grow. If the seed doesn’t have proper nutrients, it won’t grow. That makes your billing process the fertilizer that provides just the right nutrients to grow your cash flow. Better billing processes will keep pumping in money so that you can increase cash flow and grow your business.
Lack of cash flow is one of the top reasons that small businesses fail. Currently, inflation is probably the biggest issue affecting your cash flow. With the rise in price for supplies and fuel, you may start seeing a negative cash flow if you’re not diligent about proper billing and managing costs. Your business could temporarily offset negative cash flow with a business loan or negotiating pricing with suppliers, but an easier, more long-term way of improving your cash flow is as simple as better billing.
Better billing makes sure that businesses are paid in a reasonable amount of time. According to Dunn and Bradstreet’s Q4 2022 Quarterly Report for Benchmarking Accounts Receivable Performance, both the general contractors and operative builders industry and the repair services industry are on the list of the “top 15 industries getting paid severely late.” This means both industries have a high percentage of payments received over 90 days after the invoice was received.
When payments are late, there are three big consequences for your business:
When you implement better billing practices, you set a chain reaction in motion that stabilizes your finances and your business. Suddenly, you start receiving payments more quickly, your cash flow remains balanced, your team stays busy, your profit remains steady, and your projects keep moving.
To build a better billing process, you need four components:
Down payments can seem like a hassle, but they keep the money stream coming in. This is especially helpful if you are working on a larger project where lots of supplies are required upfront. Receiving some of the money upfront will help offset the cost of starting the job. If you are concerned that it will be hard to track whether your customer has paid their down payment, software like Project 2 Payment can help. You can look up the customer or the project and get accurate reports on payments received and invoices left unpaid.
Once the work is completed, send the invoice right away or take payment onsite. The most immediate way to send an invoice is through email. If you leave the only copy of an invoice at a customer’s home or send it to them via mail, there is a better chance the invoice will get lost and you’ll receive payment slower. On the other hand, electronic invoices are easier to file and can always be printed if you or your customer need a physical copy. With invoicing software like Project 2 Payment, you can also easily send reminders if the invoice isn’t paid in the right amount of time, according to the payment terms.
Read about Project 2 Payment’s Invoice Reminder Feature
Unclear payment terms cause confusion and delay payments. Defining and communicating payment terms with customers will help them understand when final payment is due. Include payment terms on the project estimate or quote, the invoice, in the email with the invoice, and on the business website. Let the customer know if the payment is due immediately upon receipt of the invoice, 30 days from the date of the invoice, or an exact due date. Don’t leave the payment due date a mystery and be clear with customers on when payment is expected.
Often, physical cash and check payments seem to be the easiest and cheapest route for receiving payment. Although this may be the preferred payment method of the business, most customers want to use credit or debit cards or e-checks. Customers prefer electronic payments because they are more likely to be able to afford the repair or remodel right away, they can view the transaction more quickly in their account, and they could be getting special perks for using a rewards credit card. Accepting electronic payments such as credit cards, debit cards, and e-checks will make it easier for your customers to pay immediately online, and your business will be able to track the payments much easier online without having to do additional data entry or drive to the bank for a cash deposit.
Read: 4 Reasons Your Customers Prefer to Pay with Credit Cards
Better billing means that your business is being paid on time, every time. By tweaking and defining your billing process, your cash flow will become steadier. A steadier cash flow will help grow your business and keep your business thriving even in times of drought.