Living month-to-month is a tough way to run a business, yet so many entrepreneurs do.
Cash flow problems can be unpredictable. In the U.S., more than 25% of small-business invoices are paid late, and 41% of owners say collecting on invoices is their biggest cash-flow challenge. That’s according to a survey done a couple years back by Bibby Financial Services.
If you never know when the money’s coming it, it can be incredibly tough to keep your business afloat through tough times. Sure, you could save profits from better months to keep you alive during the less lucrative ones — but there’s always a sneaky expense hiding around the corner that can wipe out savings. It’s almost as if your van is thinking, “New transmission? Don’t mind if I do!”
When margins are thin, access to external financing is critical to keeping companies alive. The Bibby report suggests only about a quarter of small business owners make use of external finance to help them organize their ledgers.
If you operate a small fleet, you’ve got an advantage other SMB owners don’t: You can tap a fuel card to help you pay not just for gas, but also for fleet-related expenses such as repairs and maintenance. Using a fuel card can restore some order to your operational cash flow, but it does require balance. This is what to keep in mind when using a fuel card as an extension of your business.
1. Get your billing system in order
Fuel cards can offset some urgent expenditures, but even the most understanding and flexible of lenders come a-calling sometime. You need to be able to project when your money is coming in so that you can manage your debts effectively. That means being better with invoicing and bookkeeping.
Many small business owners use software to help them track their invoicing and receive payments. Software programs can send out payment-due reminders to your customers at specified intervals, and some even permit you to receive credit-card and debit-card payments online for a small fee. You can even program the system to give customers a small discount for early payments.
This kind of automation takes some of the organizational onus off of owners. However, low-tech options abound too. You could manually create calendar reminders online, or even use a wall-mounted calendar and sticky notes to track invoicing.
Whichever option you choose, stick to it. Without a clear picture of your financial situation, using any kind of credit to float your business expenses can be risky. Having an effective invoicing and payment system not only helps you run your business, but it also trains your customers to prioritize your payments. Who doesn’t like being first in line when it comes to getting paid?
2. Negotiate the best possible terms for your own debts
We know — that advice is a bit of a double-edged sword. When the roles are reversed, we sure do like having some flexibility with payment dates.
However, as a business, it’s your responsibility to prioritize paying your suppliers on time. What you should focus on instead is negotiating favorable payment terms. If you have a good on-time track record with your suppliers, they may be more willing to give you more flexible terms — and perhaps even a discount — on the money you owe them.
External financing can help here, too. If you know a big payment is coming to you in a week, using your fuel card to pay your mechanic today is totally reasonable. Keeping on good terms with your suppliers and partners is critical to the health of a small business, and credit can help keep those relationships smooth.
3. Optimize fleet expenses
A corporate card isn’t only an extension of your budget. It can also get you discounts on routine expenditures like fuel, tolls and maintenance. Even if individual rebates feel small on their own, they really do add up over time. Every small business owner knows to take whatever breaks they can get.
Respecting a maintenance schedule is important when your business depends on a fleet. If you push a vehicle until it breaks, the expense is almost guaranteed to be monumental. Doing your oil and brake changes when you’re supposed to really can help fend off unpleasant surprises. As an organizational tool, consider using your fleet card as the dedicated channel for managing all fleet-related expenses.
Besides helping you keep your fleet in tip-top shape, fuel cards also keep your drivers honest. Being able to track their expenses in one consolidated, easy-to-read statement will ultimately help reduce unauthorized purchases. It’ll also save you the time it takes to sift through a shoebox full of worn-out register receipts.
4. Plan ahead for big bills
Of course, there’s only so much a fuel card can do. You still need to develop a strategy to manage major planned expenses, like the purchase of a new vehicle or expanding your business. Doing this well takes time. Advanced planning gives you the flexibility you need to save up, move money around and — most importantly — plan for your future.