Cash is essential in the world of business. You may be anticipating making huge profits in a few months to come, but, if you don’t have sufficient cash coming in to cover your expenses as you wait for this period, you may not have the opportunity to realise those earnings. Thus, it is vital for businesses to develop functional strategies to maintain excellent cash flow. Here is expert advice to improve the cash flow of your business.
1. Hasten the receipt of cash
Whatever steps you take to shorten your receivables will be instrumental in boosting your cash flow. So, send out invoices to your customers immediately after you deliver the goods or services. You can also change the terms of payment, for example, from 90 days to 30 or 40 days. You can also give small discounts to customers who pay their bills early and charge penalties to those who pay late. Furthermore, monitor your receivables on a bi-weekly or weekly basis, and follow up late payers as required. And, before offering credit to new customers, do a thorough background check.
2. Organise your billing schedule
If your receivables turn over quickly, you can spend bigger capital in growing your business. Use accounting software such as Peachtree Complete Plus Time and Billing or QuickBooks Pro to help you bill early and regularly. Such software can classify the age of your receivables. These automated flagging systems enable you to respond immediately to overdue accounts.
3. Request your customers for downpayment for projects
Asking for downpayment for projects enables the customers to finance the projects, not you. This way, you won't have to spend your company's money to fund projects. Doing this cushions your business from financial stress and ensures the continuity of your projects even in cases of low business seasons.
4. Use your business credit card
Use your business credit card to make purchases and pay suppliers. Find out your card’s grace period and capitalise on it. You may have about three weeks after receiving the statement to make payments. Some cards have cash-back features. So, consult your business banker to recommend the right card for your business.
5. Encourage your customers to use payment cards
Consider accepting debit and credit card payments depending on the nature of your business. They enable you to get a next-day value of your services and sales and avoid the need to handle checks and make deposits. Whether you serve clients online or over the counter, a merchant services solution will make it simple to process payment cards. When researching a merchant service solution, remember to compare the costs.
6. Stretch out your payables
Take the maximum amount of the allotted time, usually 60 to 90 days, to pay your suppliers. Consider these terms as an interest-free form of credit from your suppliers. It offers you sufficient time to collect receivables and not spend money on short-term credit lines.
7. Capitalise on early payment incentives
If your vendor gives discounts for early payment, capitalise on them. Taking a 2 or 3 percent discount on your payables amounts to getting a larger annual return that is more than you could have earned had you invested this money.
8. Ensure your prices keep pace with the rising costs
Ask yourself, when is the last time you raised your prices? many small businesses hesitate to increase their prices for fear of losing their customers. But, customers expect you to set up small, regular price increments. Again, ensure you check out your competitors on a regular basis, If they are charging higher prices, do so too.
Optimal cash flow in your business will ensure the success of your company despite harsh economic periods. Thus, follow this advice to ensure the cash flow increases in your business.