A healthy and successful business needs to focus on its cash flow as much as it does its profitability. Cash flow refers to the net amount of money that flows in and out of business. A business needs to have enough cash on hand to meet its financial obligations and expenses. This means having more money coming into the business and going into its cash reserves, which is a positive cash flow, than going out.
Even with a good cash flow, it is always a good idea to look into improving it for greater business success. This article highlights some approaches that a business can apply to improve its cash flow position. Here is what you need to do:
When preparing invoices, make sure they are correct, easy to read, and clearly state payment terms. Be clear on the payment terms acceptable to you and when the payment is due (noted in several places and preferably in bold). Also, clearly state what happens in case of late payment, state if you charge any fees as late payment penalty. Send them out right away so the payment can come in faster.
If this is overwhelming for you, engage debtor management and accounts receivable management services experts. They keep track of your invoices and follow up on any due invoices on your behalf, so your business receives what is owed on time.
Take time and do an inventory check from time to time, so you can identify those products that don't move as fast. Slow-moving inventory ties down your cash, which can hurt your cash flow. No matter how much you like them, what doesn't sell, buy less of it and, if possible, sell what you have in stock at a discount to free up your cash.
If you find yourself stuck with many unpaid invoices but require cash right away, you can opt for invoice factoring. The factoring company takes over your invoices and pays you right away, taking a small cut from the total amount earned. The payoff is you have some good cash flow for your immediate needs, and you don't have to undergo the hassle of following up with the customers for payment.
When you pay for your business supplies electronically, you can wait and make the payment in the morning that the bill is due. You can also opt to use a credit card as most usually have a grace period of 21 days, so your debts don't pile up, within which you will have organized your finances. Also, instead of waiting for days to have the checks arrive from customers, you can have them pay you using credit cards or ACH transfers.
Maintaining good relations and regular communication with your suppliers increases the chances of reaching better business arrangements with them. Learn the art of negotiation, which will come in handy in landing better deals with the suppliers. You can even negotiate discounts for payments that you make before the due dates to lower your expenses and, in turn, improve your business’s cash flow status.
Many business people worry about increasing their prices for fear of losing clients. To get better profit margins, you need to price your products slightly higher, especially where there is no way to lower expenses. The only way to determine how much higher your customers would be willing to pay is by experimenting with the pricing.
Improving business cash flow isn’t always easy, but neither is having due expenses but cannot afford to pay. If you focus on decreasing costs, increasing sales, gaining capital, or applying a mix of all of them, you will be on the right path towards increasing your cash flow.