How to Get Paid Faster by Credit Card and Improve Accounts Receivable Cash Flow

Key Takeaways:

1. Cash flow gaps are a consistent problem for many business owners and can impact your working capital.

2. Accepting credit cards and using other strategies to get paid faster can improve your accounts receivable cash flow.

3. Business financing may also help fill in any gaps and can help you build business credit.

Whether your business provides a product or a service, you need to generate sales for revenue. While this is an integral part of running a profitable business with positive cash flow, it doesn’t necessarily mean you have that money right now.

You might have booked a major project but won’t actually see that money until later. When payments are delayed, you can face accounts receivable cash flow issues that make it difficult to cover operating costs.

Accepting credit card payments and utilizing other strategies can shorten the payment cycle and help you get paid faster. In this article, we’ll cover how businesses can manage accounts receivable, explain how credit cards work as a payment method, and provide tips for reducing delays that impact working capital.

How Credit Card Payments Can Improve Accounts Receivable Cash Flow

Accepting credit cards as a payment method can help you get paid faster. The goal is to reduce barriers for customers, and this is one way to do that.

When you send an invoice or make a sale, you can accept credit cards and have the payment processing start right away.

This can reduce delays and turn your AR balance into usable working capital.  Though it varies by payment processor, your credit card payments may hit your account within a few business days.

While credit card payments can help you get paid quickly, they also come with processing fees. That can lower the amount you receive, but it could be worth it to get paid faster so you can cover payroll and other operating expenses.

5 Ways to Get Paid Faster and Improve Accounts Receivable Cash Flow

Your cash position directly impacts your working capital and ability to run your business. Here are five ways to get paid faster.

1. Make it Easy to Pay You

One point of friction between business owners and clients is payment. To reduce that friction, make it as easy as possible to pay you. That means accepting debit and credit cards, as well as ACH and online payment, when applicable.

Faster payment methods can ultimately help solve your accounts receivable cash flow issues. These options may come with fees though, so weigh that against potential benefits.

2. Invoice Customers Right Away

To get paid early, invoice early. You can’t get paid unless you invoice your customer. Send invoices to customers and clients for goods and services once they’re delivered or rendered.

When possible, you can automate recurring invoices and use accounting software to streamline the process. Make sure you provide clear payment instructions and due dates.

3. Have Clear Payment Terms and Incentivize Early Payments

Be clear with all of your clients and customers about your payment terms. One way to manage accounts receivable cash flow issues is to offer early payment discounts. For example, you might have Net 30 payment terms, but if customers pay you within the first seven to 10 days, you may offer a small discount.

That can encourage customers to pay early and save money while improving your business’ financial position.

4. Require a Deposit

For substantial or time-intensive projects, requiring a deposit can help your cash inflows. You can collect a percentage of the payment upfront and require the remaining balance at the end of the project or through milestone-based payments.

5. Track Accounts Receivable Cash Flow and Follow Up

When you’re running a business, you might have many invoices out there waiting for payment. Ideally, clients pay on time. The only way you’ll realize an invoice is late is if you track accounts. It helps to review your aging report and follow up after due dates if you’re facing late payments.

Offering electronic payment options and tacking on late fees may help with AR management.

How to Manage Accounts Receivable and Avoid Cash Flow Gaps

If you’re frequently facing accounts receivable cash flow issues, here are some ways you can manage your collection efforts.

1. Evaluate Customers First

As a business owner extending credit, you’re essentially taking the risk and allowing customers to pay later. While this might be standard in many industries, if necessary, evaluate customers first. Review their creditworthiness and reputation.

Some customers may need different terms or credit limits if they have a greater risk of nonrepayment.

2. Align Accounts Receivable and Accounts Payable

Your bills might be due, but your cash isn’t coming in for another several weeks. This is the heart of many cash flow issues and can directly impact your financial stability.

One strategy is to align accounts receivable and accounts payable. Doing so can help with working capital management and improve accounts receivable cash flow.

3. Adjust Credit Terms for Consistent Late Payers

Not having enough cash on hand to cover operating expenses can be a major stressor. To help alleviate some accounts receivable cash flow issues, adjust credit policies for customers or clients who consistently pay late.

Consider shorter credit terms. So, instead of Net 60, consider having Net 30 or Net 15 payment terms. You may also start requiring deposits or even requiring payment at the time of delivery or services rendered.

Stricter terms can impact the customer relationship, so be sure to adjust on a case-by-case basis and tailor your policies based on your specific business model and the customer.

What To Do If You Need Cash Before Customers Pay

Managing accounts receivable cash flow when clients or customers pay late can be a challenge. If you need cash before customers pay, you have several options.

1. Merchant Cash Advances (MCAs)

Merchant cash advances are a type of alternative financing that businesses can use to turn their sales or receipts into a lump sum. The way it works is that a company provides you with upfront capital now, in exchange for a percentage of future debit and credit sales or receivables.

While this can help with operating cash flow, MCAs are often more expensive than other types of financing.

2. Invoice Financing

Small businesses working with clients may invoice and have Net 30 or Net 60 payment terms. While that can give them more time to pay, it can affect your cash flow management.

Invoice financing allows you to utilize those outstanding invoices to unlock capital. Through invoice financing, lenders provide funding upfront for a set percentage of your invoices. According to QuickBooks, that could be 70% to 95% of the invoice amount.

After customers repay the invoices, you’ll receive the remaining balance after the lender subtracts fees. These may range from 1% to 5%. While this is a tool to help manage accounts receivable cash flow gaps, understand the true costs.

3. Business Line of Credit

A business line of credit can be a valuable financing tool as it provides revolving access to funds. A lender will offer you a set credit limit, and you can borrow only what you need at the time.

If you’re facing accounts receivable cash flow issues, a business line of credit can help you cover operating expenses while you wait for payments to come in. The way it works is you use what you need, pay interest on that amount, repay, and the available credit resets.

Be aware of the repayment structure and fees before using it as a tool to help your liquidity.

4. Business Credit Card

Business credit cards are another tool that can help small business owners manage accounts receivable cash flow gaps. They don’t help you in the collections process with your customers or make your receivables come any faster.

But they can help you cover expenses now, while you wait. Ideally, you can repay the credit card when your customers pay you and the accounts receivable cash flow situation has improved.

How to Get a Business Credit Card When You Need Flexibility