May 21, 2025

As accountants, one of the most common issues we see with businesses, especially growing ones, is cash flow inconsistency. The books might show a profit, but the bank account tells a different story. If that sounds familiar, you’re not alone.

 

Healthy cash flow is essential to daily operations, growth, and stability. Without it, even profitable businesses can find themselves unable to make payroll or take on new opportunities. That’s why developing a strong cash management plan, particularly around collections, isn’t just helpful, it’s necessary.

 

Where Most Businesses Go Wrong

 

Many businesses focus heavily on revenue and overlook how long it takes to actually receive that money. They send an invoice and hope the client pays on time, but hope isn’t a cash flow strategy.

 

Inconsistent follow-up and unclear payment terms are two of the biggest culprits. If your team is treating collections as a last-minute task, or if clients are confused about expectations, you’re likely leaving cash on the table.

 

Rethink Your Payment Terms

 

Start with your invoicing process. Are you sending invoices promptly? Are your terms clearly defined, and appropriate for your industry? “Net 30” may be standard, but if your work is short term or project based, consider shortening your terms or requiring a deposit up front.

 

Incorporating tools that allow for online payments or automated reminders can also help reduce friction. Many clients aren’t avoiding payment, they just need a reminder or an easier way to process it.

 

Formalize Your Collection Process

 

If your collection strategy depends on whoever remembers to follow up, it’s time to build structure. Create a written collections policy and ensure everyone on your team, and your clients, knows the process.

 

Your policy should outline:

• when invoices are issued;
• when reminders go out;
• when an account is considered overdue; and
• what actions will follow, late fees, service holds, escalation.

 

When the expectations are consistent and communicated early, you’ll see less pushback and faster payments.

 

Monitor Key Metrics Like DSO

 

Tracking your Days Sales Outstanding (DSO), the average number of days it takes to collect payment, is a great way to monitor the health of your receivables. A rising DSO is an early warning sign that cash flow may tighten in the near future.

 

“Metrics like DSO give you visibility into how efficiently your business turns invoices into cash,” says Alison Houck Andrew, CPA, who advises clients on cash flow forecasting and strategic planning. “Without that data, you’re flying blind.”

 

Other Ways to Strengthen Cash Flow

 

While collections should be a priority, there are several other ways to improve cash position:

 

• Negotiate vendor terms. Even 10 more days to pay can make a difference
• Use deposits or progress billing. Get partial payment up front for large projects
• Forecast regularly. Look 60, 90 days out and plan around expected inflows and outflows
• Review inventory levels. Don’t tie up cash in excess stock
• Limit capital purchases. Consider leasing or financing equipment instead of paying upfront

 

Make It a Habit, Not a Reaction

 

Improving cash flow isn’t about scrambling when things get tight. It’s about building better habits, processes, and visibility so your business can operate from a position of strength, not stress.

 

If you're not sure where the gaps are in your collections process or cash management strategy, we can help. It’s not just about tracking the numbers, it’s about using them to make informed decisions.

 

Let’s look beyond the P&L and focus on what’s actually moving in and out of your accounts. Because when your cash flow is strong, everything else in your business runs more smoothly.