The InvoiceSherpa Blog

Why Outstanding Invoices Hurt Your Cash Flow

As a business it's important to always watch your cash flow. It's the way you not only pay your bills, it's also the way you grow and sustain your enterprise. Get too low on cash and you can't pay your bills, danger Will Robinson, danger! Have too much of it around (not likely I know) and you could simply be underfunding your business and holding back on growth for your business.

It's this care balance that is really the magic of cash flow. But how exactly does this dance work and where do invoices get involved? Think of the invoice as the means to the end of cash flow. It serves as a way to indicate to your customer that the work is done and that it's time to pay up. The only trouble with this concept is that it opens up room for customers to start using you as their personal bank.

Think about it, when you send a customer an invoice from the moment they accept it they owe you money. That means that cash in their account really belongs in yours, fair and square. So the longer it sits in their account and not yours it's really just a loan in disguise. And from that moment it starts to weigh on your cash flow. Invoices being what they are and terms being what they are a certain amount of days outstanding is going to be a wash since you simply do the same thing to your vendors.

But what becomes important to maximize your cash flow is to get these invoices paid at minimum on time and preferably ahead of time. Make sense right? But how exactly can we accomplish such a marvelous feat? It's a subtle balance between sending good invoice reminders when you first cut the invoice and then following up starting with another reminder right before the due date and then if they do go over the due date and become past due start raising the level of the invoice reminder quickly to keep cash flow positive.

It's the point where the invoice goes past due where cash becomes very painful. This is the period when even your planning goes out the window and quickly some seriously negative issues can arise like literally running out of money to pay your bills and yourself. Think this isn't a problem? A recent study of companies large and small found that routinely 30% of all invoices in the world are past due. If you don't want to become one of these companies you need to seriously put invoice reminders front and center in your strategy.

Ready for the pitch? Does all of this sound like a bit of a hassle, we it is! And that's why we created InvoiceSherpa. We automate this whole painful, but necessary process for you from the time you cut the invoice to the time you get paid. Maximizing your cash flow. Since this headache isn't going away anytime soon think about making automated invoice reminders part of your business success strategy.

Posted on January 22, 2014

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