5 strategies to boost your business cash inflow

By CapBay

• Request deposits on custom or large orders

Require a security deposit equivalent to a minimum of 50% of the total price when dealing with a unique or large order. Without the deposit amount, you are subject to the risk of receiving a reduced payment at delivery time.

Having deposits minimise the likelihood of financial loss in the worst circumstances. Ensure that customers understand your policy clearly and include in the contract to avoid future disputes.

On the flip side, avoid paying deposits to your own vendors by leveraging your credit history and strong relationship with them. Alternatively, SME financing in Malaysia can help maintain cash flow, allowing you to manage payments more efficiently and avoid the need for upfront deposits.

• Stage payments on long contracts

Some customers refuse to enter into a contract that requires initial deposits due to their size or policies. Instead of losing business with them, negotiate payment terms or benchmarks that exceed or parallel with your costs.

For example, a construction contract that allows 15% of payment when engineering is completed; 25% of payment when materials have been delivered to the site, and 50% of the contract amount at specific progress benchmark. The remaining 10% will be paid usually until final inspection and acceptance. If needed, available SME financing in Malaysia can also provide support to bridge any gaps, ensuring smooth project execution while accommodating flexible payment arrangements.

• Offer discounts for early payment and penalties for late payer

Develop a discount program to promote quick payments, collecting cash owed to you as fast as you can. Impose a 2% discount on payment within the first 10 days for credit term that normally 30-days after the receipt of the invoice. You can offer more or lesser discounts for payment, depend on your needs and customers’ previous paying behavior. However, remember that your ability to impose a collection policy will subject to your relative strength versus your customer.

The penalty imposed to the late payers is the “stick” in the “carrot and stick” approach of motivation, the “carrot” is the discount offered for early payment. Interest penalties may not be possible in all scenario but the existence of this policy will emphasise the importance of on-time payments to your customers. This can be a valuable tool, especially when paired with SME financing in Malaysia to help manage cash flow while maintaining positive customer relationships.

• Deal with collections agency for old account receivables

Pursuing old accounts receivable requires dedication and time, only a few small businesses have the resources and experiences in pursuing delinquent accounts.

Third-party collection agencies are proficient in working with such accounts and generally willing to pursue collections on their own expenses in return for a certain percentage on the collected amount. The agencies will even purchase the old account receivables at discount and assume all subsequent risk of collection under certain circumstances. The sky-high costs of collection agencies on delinquent accounts are worth as your alternative may be no payment at all. This strategic approach can be particularly beneficial for businesses looking to maintain cash flow and support their operations, especially in conjunction with SME financing in Malaysia.

• Entering to a factoring agreement

Factoring involves a non-bank finance company or “factor” like CapBay which advances a negotiated percentage, 75%-80% of the individual accounts in the accounts balance. As the accounts are collected by the company, the advance is paid off plus the agreed fee to the factor. In some cases, factors may purchase the accounts at discounts and responsible on the risk of collection. A factoring agreement is typically less restrictive than accounts receivable financing at regulated banks. This makes factoring a valuable option for SME financing in Malaysia, helping companies enhance cash flow and manage their finances more effectively.