Clarify How and When You Expect Payment
The best business is one in which you collect payment from your customers as soon as payment is due – ie, with credit card payments. If your customers will pay with credit cards or direct bank payments (“ACH” or “EFT”), consider that as a way to improve your cash flow. Although you will lose 2-4% in bank fees, you will receive payment within days instead of weeks or months.

If you sell to other businesses, then you may have to send invoices and wait for payment. This is where it’s critical to be sure your customers know when they’re expected to pay.

Be sure this is clear before you start work.
Most business customers expect 30 days to pay invoices. Many large businesses expect 60 or 90 days or even longer.

What’s worse is that some large businesses will agree to 30 days and then take 60 or 90 days, because they know you want their continuing business. They will ultimately pay, but they’ll make you wait. If you don’t have cash, cash flow, or credit to wait it out, these large customers can cause severe problems if you’re counting on their payments to pay your expenses. If you’re a small business selling to large businesses, prepare to wait for payment.

Offer Early-Pay Discounts
Offer a 2% discount if business customers pay within 10 days. A very common term is “2/10 Net 30”, which means you expect payment in 30 days, but you’ll give 2% off if you receive payment in 10 days.

You can also offer a discount if your customer pre-pays for a long period of time. For instance, if your customer usually spends $100/month, offer 6 months for $550. That’s an 8% discount. That does lower your long-term revenue, but it’s a strong incentive for customers to pay up front.

Word to the wise: if you collect long-term pre-payments, spread the cash received over the number of months it represents. You have an obligation to provide the service for which your customer paid, so don’t use the money too early.

Bill Often
If you’re selling time & materials, such as with home improvements or website design, be sure to collect a deposit before you start work. Most industries have norms around this, but a rule of thumb is to collect 25-50% up front, and the rest when you reach milestones and again when you complete the work.

The same applies if you’re billing on a strictly hourly basis… collect a deposit up front and be sure to bill your customer for hours & materials every week or two.

This is critical to keep good cash flow, and to avoid a serious problem if your customer cannot pay for your work after you’ve spent time & money on their project.

Adopt a Recurring Revenue Model
If your business naturally generates a recurring revenue stream, then you’re ahead in terms of consistent cash flow. Think of cell phone service, cable TV, HOA dues, yard care, cleaning service, and insurance – they all have consistent cash flow.

More and more businesses are adopting a recurring revenue model because of the clear cash flow advantages that result. For instance, some doctors offer a monthly fee, charged to a credit card, for periodic office visits. In another example, churches and schools are setting up recurring donations – where each donor can select an amount that’s charged to a credit card every month or every quarter.

Software is another area that’s changing quickly. You may have heard the term “Software as a Service” (or “SaaS”). Customers receive access to software via the Internet, and that access continues as long as they keep paying a monthly or yearly fee, which is usually billed to a credit card. Everyone knows about paid online dating sites (an early example), but there are many, many others today.

Find a recurring revenue model in your business – even if it’s just 20% of your total revenue, it will make a positive difference in your cash flow.

Chargify and Zuora are web-based systems for managing recurring customers and revenue.

Use an Online Accounting System
An online accounting system is an absolute must for any business, even if you’re a 1-person shop. Online accounting systems can generate invoices, send them to your customers, and let you monitor your Accounts Receivable with things such as an Aging Report (a report of who owes you money and how long they’ve owed it).

Most accounting systems can also send reminders when customers are overdue, and extra charges can be automatically added when customers pay late.

Use an online accounting system starting on Day 1. Xero and Quickbooks Online are web-based accounting systems for small businesses.

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Lance Walley, serial entrepreneur and CEO of Chargify, @lancewalley