By getting on top of your cash flow, you can ensure your business is prepared to weather tough times and better yet, is well positioned to grow when the conditions are right. Even small businesses experiencing annual growth can have cash flow shortages that can be a barrier for future growth. The statistics are alarming but the good news is cash flow can be improved by better management of some key business processes.
Try these handy hints to master your cash flow today.
1. Following up invoices
If you are already applying key management practices in your invoicing to make debtors pay sooner, such as invoicing and billing on time and providing online payment options, try increasing customer communications as another strategy for speeding up payments. Always follow up overdue invoices or bills by contacting clients directly. Telephone calls and letters are often less confrontational than electronic communications and can give you more information as to why the customer or debtor is having trouble paying.
2. Late payments
If payment still isn’t received by the due date, you may need to switch a client’s service off or withhold products. Inform clients before suspension to give them a chance to come good. Quite often this notification will be enough to cause a prompt payment. Ensure your communications are helpful and professional to avoid alienating clients. Stretch out your own payables beyond a 30 day period to 90 days by negotiating better payment terms. This will give you time to collect receivables and pay vendors the money you receive.
3. Reduce payments
Negative cash flow can often be found in expensive overheads, such as for business equipment. One way to alleviate negative cash flow is to lease your supplies, real estate and equipment, especially if purchasing these items requires borrowing. By leasing these items instead of buying them, you can reduce payments to small increments that have less toll on your operating capital than hefty loan and interest repayments.
4. Credit checks
Conduct credit checks on customers before you sign them up to contracts to ensure customers will be able to make payments on time. If you can’t go without a sale, consider implementing interest terms that will help recoup some lost revenue on your part when payment finally occurs.
5. Handling inventory
Managing your inventory helps free up stagnant cash tied up as stock and is another big way to speed up your cash flow. Check your inventory regularly and pinpoint stock that is not moving and offer discounts to customers to encourage them to buy these items. Experiment with increased pricing of goods and services at the point of sale to increase your profit margin. Keep your products or services competitive by offering customers special deals or discount incentives for early payment.