Many underestimate how hard it can be to get paid for their work when they start their businesses. They understand revenue and costs, but the challenge of managing cash flow is often appreciated only when it's already a problem. It's not something that affects a business only in the early days, though, and there are always ways to improve cash flow.

According to a recent survey of 3,139 small businesses, one of the three biggest challenges SMBs faced in 2021 was "managing my cash flow and payments collection." This problem was identified by 23.4 percent of all the participants, which is a significant minority. A business management app for small businesses called Vcita conducted this research to document the state of digital transformation among micro-entrepreneurs operating in the service sector. 

I wanted to understand more about the key obstacles adding friction to small-business owners' processes for getting paid. Was it a lack of digital tools? Was it that small companies have less leverage to enforce collection? I reached out to Vcita CEO Itzik Levy to get his tips on what small businesses can do to streamline their processes. Here is what he shared.

Make your terms clear

I've seen many service-based businesses struggle to convey their payment terms. Customers may think it's unclear how and when they should pay, which inevitably results in their being slower to transfer payments. With larger businesses, we are used to formal requests for payments, but this can feel awkward for small-business owners who are eager to retain customers.

It's advisable to avoid conversationally asking for payment in apps such as Microsoft Teams or Slack, which you might be using as your primary hub of communication over the course of your work engagement. The customer may see it but then get distracted by other notifications. 

Later down the line, they may forget where the request came from, leading to further delay.

Levy advises small businesses to send a clear invoice, ideally through email, with a breakdown of what the customer is being charged for as well as why. It's good to set out when you expect the payment. If you operate with a subscription model, it's important to state whether services will be cut off if payment is not received.  

Make it easy for customers to pay you

Getting paid promptly for services rendered is hardly a new challenge, but small-business owners also need to consider the issue from a customer experience perspective. In the same way that reducing friction is so important when trying to close the sale, it's also pivotal when collecting payment. 

If you're stuck in cycles of sending invoice reminders and waiting for checks to arrive, you may be overcomplicating things for both yourself and your customer base. 

Levy recommends that you think about how convenient it is to buy from major sellers online and how used we are to paying using our credit cards or digital wallets. This is the same type of experience that you want to give your customers. 

Many small businesses still ask for bank transfers, which are fraught with obstacles and often require more work for the customer. However you want to get paid, make sure it's as simple and seamless for the customer as possible. A small increase in payment friction can have a much larger impact on cash flow.

Set up automated billing

You can go one step further and automate a lot of your billing, especially for subscription models. 

Too many small businesses rely on time-intensive manual processes, and it means they do more work than they need to, making mistakes and causing delays along the way. Levy says he loves hearing from entrepreneurs who have dramatically reduced the amount of time they need to spend managing their finances. 

If you make the switch to using integrated CRM software, then you can easily see which customers have payments due or overdue and react to this. From here, you can set up rule-based automations so that clients are automatically sent invoices and reminders to pay. 

For small businesses where the team often needs to juggle different tasks all at once, it can be a welcome relief to automate these aspects so they have more energy to work on other parts of the business.

Don't overcomplicate your digital ecosystem

The most surprising news coming out of the survey for me was that 60 percent of micro-entrepreneurs use three or fewer digital tools to run their businesses. Any business owner knows that once you start looking into tools for your business, you suddenly become bombarded with adverts for all manner of apps. It can often feel like you're missing out on tools that will grow your business.

Yet Levy's explanation for why most businesses use only a few core tools made sense to me. For a small business, training on new software can be a significant cost, and the confusion of switching between different apps can waste time. Most businesses prefer fewer apps that are more fully featured instead, because then they can become experts at using that ecosystem.

Rather than buying lots of different tools to try to manage your business, you should use multifunctional apps that allow you to do everything you need to manage your cash flow. Having all the information and processes you need in one place can save you a lot of time and money.

The less complexity you add, the easier it is to understand your finances and make the right plans for the future.