How to Manage Cash Flow with a Long Sales Cycle

A disruption in cash flow can cost a business far more than the dollar amount owed.

In fact, according to a CB Insight research report, more than a quarter of startups fail in part because of such issues.

It isn’t difficult to see why: When there is a disruption or delay in client payments, covering employee salaries and benefits, rent and utilities, supplier invoices, and more can become challenging—especially as you strive to scale up, service existing clients, and pursue new deals.

Cash Flow Strategies

Structuring a plan that focuses on the following areas can improve and optimize your cash flow internally as you work through business development:

  • Operations: The core of your business is the sale of goods and services you provide. Eliminating unnecessary costs can alleviate the burden on incoming revenue. During lean times, you may have to rely on older, staple revenue streams while others lag behind.
  • Financing: It is crucial to make the most of the cash you can access and maximize your returns. This can mean seeking business loans or raising capital through additional investors. Remember, however, you will need to show backers that your business has the potential to not only recoup its costs but thrive moving forward.
  • Reinvesting: Putting money back into the business is vital to ensuring your team possesses the right technology and tools to capture sales opportunities and turn around payments fast. If you do not regularly invest in your business by purchasing technology to modernize your operations, you risk losing contracts and clients to rivals who are more up to date.

Focus on these areas to facilitate the deal process externally:

  • Flexible invoicing: Present clients with payment options. This can include mobile and staggered payment options that offer the clients convenient ways to make good on the contract without paying in full upfront. Seek out ways to help them reduce any friction that could slow down the approval process.
  • Qualified pipeline: Your sales team should make every effort to pursue any and all legitimate sales leads and prospects. Be proactive in this area so if one or two contracts lapse there will still be a steady influx of cash.
  • Build a timeline for the client: Everyone needs realistic parameters to operate within. Your customers are no different. Lay out the vetting and onboarding timeline so clients have a sense of how soon they need to act in order to achieve their internal goals. Candor in this step can save everyone time and money later.

Covering the Gap

You may take every step to optimize contracts and revenue streams yet sometimes still face gaps in your cash flow. There are a few potential options to pursue additional funding to keep the business operating:

  • Investor funding offers businesses an avenue to prosper and scale up by selling bonds and shares of the company. Yes, taking on investors does mean giving up pieces of the business, but also allows you to access cash from backers who want you to succeed.
  • Bank loans allow a business owner to retain primary control and ownership of the business while providing necessary funds. If you’re a qualified borrower, be sure to shop around for the best interest rates and repayment options.
  • For certain expenses, business credit cards can cover costs that might not merit business loans or new investors, including one-time purchases or smaller payments that must be made quickly to satisfy suppliers and vendors.

Work With Your Prospects

Communication is important throughout the sales cycle to get a realistic picture of a given client’s ability to pay you in a timely fashion. And there may be some clients who, after a positive experience, may introduce your business to other potential customers. Such referrals might turn into future revenue sources to help improve cash flow and growth.

Ultimately, it’s worth it to work with your clients if there is a temporary delay in payments coming in—both to shore up your current capital reserves as well as to set your business up for future success.

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The views expressed by the author are not necessarily those of Fifth Third Bank and are solely the opinions of the author. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank, National Association or any of their subsidiaries or affiliates, and are provided without any warranty whatsoever. Deposit and credit products provided by Fifth Third Bank.