It’s safe to say that businesses want to bring in more cash than they pay out, right? There’s a name for that: positive cash flow, and it means the business has a cash reserve. On the other hand, a negative cash flow means there is not a sufficient amount of money in the bank account to cover the cost of current business expenses. Positive cash flow is crucial to the long-term success of any business, and today we’re going to talk about what you can do to help secure it, while improving your cash flow management.

If your cash flow forecast gives you anxiety about your business’ financial health — or has you questioning your financial decisions and how you’re going to afford future operating expenses, investments or other business needs — the solution could lie in your accounts receivable (A/R) processes. Let’s look at five common challenges that prevent businesses from maintaining a healthy cash flow and, more importantly, some potential fixes.

1. No consequences for late payments

Allowing customers to pay whenever they want creates cash flow unpredictability. Since you don’t know when you’ll receive payment, you can’t count on that money being available for outgoing expenditures.

Potential solution: Create (and enforce) payment terms and a late payment policy

To keep cash flow predictable and help ensure you always have an appropriate amount of cash to cover business expenses (plus enough cash on hand for unexpected expenses), you need your customers to pay on time. To do so, consider putting payment terms and deadlines in place. The most common payment terms for B2B businesses is 30 days, while longer terms like 60 or 90 days are usually reserved for special circumstances and one-off occasions.

Enforcing payment deadlines can help you better gauge cash flow projections, and you can do so by imposing late fees or turning off services. Keep in mind, these penalties can have effects on customer satisfaction, so transparency is key. You’ll want to provide customers with multiple notifications about these penalties before they take place, and make sure they are outlined before any initial services are purchased or contracts are signed.

To speed up cash inflows, you can offer incentives — like early payment discounts — that encourage customers to pay before the due date. A PYMNTs study found that businesses with annual revenue between $3.5 million and $5 million prioritize payments to partners offering financial incentives. 47% of those accounts payable departments even opted to automate the payments.

2. Failing to follow up with customers about payments

There’s a solid chance your customers aren’t purposely avoiding payment. More likely, they’ve simply forgotten (especially if you offer longer payment terms). Not following up with customers about upcoming and past due payments usually makes getting paid on time more difficult, contributing to cash flow issues. But there’s an easy way to fix that.

Potential solution: Create and schedule payment reminders

Consider implementing a formal payment reminder schedule. This typically includes a string of payment reminders sent at important intervals in the payment cycle, such as one week before, one day before and payment due date. If you are still accepting paper checks, sending out a reminder at least 1-2 weeks before the due date can give your customers enough time to print and mail a check.

Payment reminders are a great way to encourage customers to pay on time, but finding the resources to send out payment reminders can be difficult, especially if you’re a small business. That’s where accounts receivable automation comes in. You can create reminder templates for outstanding invoices and schedule them to go out on a recurring basis. Businesses that rely on manual processes take 67% more time to follow up on past due payments than those using automated processes. Automating this communication is key to seeing more on-time payments — without increasing resources.

3. Relying on paper checks

As we move to a more digital world, paper checks just aren’t keeping up to speed. Why? They’re inconvenient for both you and your customers. The customer has to physically mail the check, then you have to deposit it and separately enter the payment into your accounting software for bookkeeping. Plus, paper checks can get lost in the mail, delaying payment even longer.

Potential solution: Accept digital payment methods

Digital payment methods, like credit cards, ACH/eChecks and digital wallets, are fast and convenient. Digital payments also help reduce the manual labor associated with accepting checks and keep your business running efficiently.

If you are still accepting the majority of your payments through paper checks and don’t want to jump into only accepting credit/debit cards and digital wallets, ACH/eCheck options could make for a smoother transition into digital payments. eChecks are similar to paper checks but are processed digitally and offer faster processing times, which could not only help you get paid faster, but also help reduce late payments. Many B2B businesses are moving towards this quicker, more secure payment option: 6.6 billion ACH B2B transactions were made in 2023 — a 10% increase from the prior year.

4. Wasting time on payment collection instead of moving the needle

Think about how many steps are in most payment collection processes: Deliver the invoice, send a reminder, collect and process the payment, send confirmation receipts and apply the payment. The more manual steps in the process, the slower the payment cycle will be. Often, team members who could be contributing to customer satisfaction and upselling other services find themselves bogged down with these tedious day-to-day admin tasks.

Potential solution: Automate the accounts receivable process

Automating the collection process will speed up the payment cycle and help you get paid faster. The sooner customers receive their invoices, the sooner they can pay. Mailing physical invoices to customers extends the length of the payment cycle because regular mail can take days to be delivered (same issue as paper checks). But with electronic invoices, customers can view them online immediately. With the rise in the Days Sales Outstanding (DSO) averages — especially those in the B2B industry — companies must focus on process improvements that encourage timely payments.

According to PYMNTs, up to 88% of businesses were able to reduce their DSO by automating their accounts receivable process. Reducing the number of days a payment remains unpaid can help mitigate cash flow problems and improve cash management.

Reconciliation is another very manual part of the collection process — especially true if you’re managing multiple or disconnected systems. Using an integrated payment solution with your ERP or accounting system can help ensure that you always have access to real-time data. It reduces the need to manually enter payments, freeing up your team to work on more proactive business plans that will ultimately boost your bottom line.

5. Making the payment process difficult for customers

People want to work with vendors who make it easy to do business. That includes how easy it is to make a payment. If paying their bill is tedious and difficult, customers are less likely to pay on time (and you may even risk losing their business).

Here’s an example: One common reason customers miss payments is due to bill errors. They catch a mistake on their invoice and have to reach out to the vendor to fix it (which in itself adds time to the process). Companies are seeing A/R errors as a growing problem as their business operations scale, and 34% of businesses stated they decided to automate after noticing an uptick in mistakes that automated systems could have caught.

Potential solution: Offer self-service payment options

It should be clear by now that improved invoice accuracy and error detection can help speed up the payment cycle and improve cash flow issues. One way you can do that is by offering self-service payment options. And with today’s consumers being more digitally native, focusing on electronic invoicing and billing is more important than ever.