No business can sustain itself without cash; this is especially true for a bootstrapped start-up. A lot of businesses are forced to close their doors due to inadequate cash management.
It just goes to show how important managing cash collections is to a start-up.
Most start-ups bill their clients on an accrual basis –recognizing revenue when it’s earned rather than when payment occurs. This method becomes a problem when a customer pays late or not at all. And that is dangerous territory.
Here is what you need to do to maintain your company’s health:
Bill up front
Ask customers for payment on delivery, and only accept Automated Clearing House or credit card payments to avoid uncertainty or delay in payments. You can also enforce or encourage pre-payment. While some customers may be deterred by high upfront costs, discounts can win them over, and late-payment charges can reduce overdue accounts and help you predict cash flow needs.
Handle your invoices with care
Make sure you send your invoices far in advance. If you don’t give your customers enough notice, you’re practically asking for late payments. Also, track all outstanding invoices, and have a system in place for credit guidelines and follow-ups.
Be accountable
If you don’t have a clear budget and proper accountability, you’re almost definitely losing money. Early-stage start-ups seldom have the resources for a full-time CFO, but if you aren’t diligently recording spending, you have no way of knowing if you’re going over budget.
If you want to grow big enough to be able to delegate this work, you have to manage your cash collections well now. Otherwise, you could find yourself drowning in debt. Get the money you’ve earned, stop wasting precious resources, and enjoy the extra room in your budget.
[Original:entrepreneur]