The best way by which businesses can improve their cash flow is by requesting a down payment or advance payment for products or services. However, at times, competitive pressures and generally accepted business norms might require selling products and services using a deferred payment method, or offer payment in installments, even though suppliers will still expect their payments on time. In such cases, business owners need to negotiate for quicker payment or down payments from customers in exchange for a discount.
The best practice when drawing up contracts that involve delayed payments is to insist on payments within 30 days of delivery.
In cases where payment comes in installments over time, insist on automated credit card transactions that credit the amount to the bank account without having to make efforts to collect the payment.
Many times, even customers practice the principle of delaying payouts to boost their own cash flows! Companies would do well to pursue payments due relentlessly, for it not only improves cash flow but also reduces the chances of eventual default. An efficient system to keep track of receivables and a sound system to follow up and collect payments are valuable tools in cash flow best practices.
If customers do default, a good idea is to offer a settlement waiving penalties or even a discount on the original bill, but only on immediate payment. Customers who default will most certainly do so in a revised payment plan as well, however. Such an approach always has the danger of encouraging customers to default to obtain better payments or discounts.