From invoice collection to payment terms negotiation — these 15 tactics will improve your cash position starting this week.
Invoicing and Collections Tactics
Tactic 4 — Request Advance Payments|For new customers or large orders, require a 30-50% advance payment before starting work. This is standard practice in construction, IT projects, and custom manufacturing. Frame it as your standard policy rather than a special request — most professional clients expect it.
Supplier and Banking Tactics
Tactic 8 — Use Invoice Discounting or Factoring|Invoice discounting allows you to borrow against outstanding invoices — typically 80-90% of the invoice value — from a fintech lender. You receive the cash immediately and repay when your customer pays. This is useful for businesses with slow-paying corporate clients. NBFCs and fintechs like KredX, M1xchange, and RXIL offer this service in India.
Operations and Pricing Tactics
Tactic 12 — Cut or Defer Non-Essential Fixed Costs|Review your fixed cost base annually and ruthlessly eliminate or defer anything that does not directly contribute to revenue. Unused software subscriptions, excess office space, underutilised vehicles, and over-staffed support functions are common areas where cash is leaking without equivalent value.
Monitoring and Reserve Tactics
Tactic 15 — Calculate Your Cash Conversion Cycle|The Cash Conversion Cycle (CCC) measures how long it takes to convert your operational spending into cash collected from customers. CCC = Days Sales Outstanding + Days Inventory Outstanding - Days Payable Outstanding. A shorter CCC means faster cash recovery. Track this monthly and work systematically to reduce it — even shaving 5 days off your CCC can significantly improve your cash position.
Frequently Asked Questions
What is a good cash reserve for a small business in India?
The standard recommendation is 2-3 months of fixed operating costs as a minimum cash reserve. Fixed costs include salaries, rent, utilities, loan EMIs, and any other obligations that must be paid regardless of revenue. For a business with ₹8 lakh in monthly fixed costs, the target reserve is ₹16-24 lakh. Seasonal businesses and those in volatile industries should maintain 3-4 months of reserves.
How do I collect overdue payments from clients without damaging the relationship?
Start with a gentle automated reminder before the due date (this sets expectations). After the due date, send a professional reminder email on day 1-3. If unpaid at day 14, follow up by phone — most late payments are resolved with a simple phone call. At day 30, send a formal notice. At day 45-60, consider involving a collections professional or solicitor for large amounts. The key is to be consistent and systematic rather than emotional. Document all communication carefully.
When should I consider invoice discounting or factoring for my business?
Invoice discounting makes sense when: (1) you have reliable corporate or government clients who pay slowly (60-90 days), (2) you need to bridge the cash gap to fund growth or operations, and (3) the cost of discounting (typically 1.5-3% per month) is less than the cost of missing growth opportunities or defaulting on obligations. Avoid it if your margins are thin, as the cost can erode profitability significantly.