It takes money to make money as the saying goes, and for many small businesses, their main problem is not necessarily lack of money, but poor management of their cash flow. If the funds are not there when you need them, you can’t run your operation successfully and efficiently.
While there is no quick and easy fix for improving cash flow, many problems stem from a simple failure to evaluate current practices and see where tweaks can be made. It is easy to fall into habits and doing things as they have always been done without stopping to think if there may be a better way. Lots of seemingly small changes can add up to big results. Here are just a few ways to get that green flowing like you need it.
If you are like the many businesses that operate by extending credit to customers, you know all too well that a sale is not truly a sale until that invoice has been paid. Performing services or providing goods and waiting at least 30 days for payment is not really ideal, but sometimes necessary, depending on your industry. If immediate payment is not an option, you must maximize the efficiency of this system.
Send bills out immediately—don’t batch your invoices to be done at once every two weeks or something like that. Establish a set process for dealing with late payments—most small businesses try to collect haphazardly without any sort of system, and cash flow suffers. Getting a handle on your accounts receivables is a crucial part of better managing cash flow.
Negotiate Longer Payment Terms with Vendors
Late payments to vendors really will not fly, and if you find yourself strapped for cash because you must use available money for these payments, while waiting on customers to pay invoices, see if you can negotiate longer payment terms. Ideally, you will be able to service customers, invoice them and get payment before you have to send that check to your suppliers.
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Consider Factoring Receivables
Invoice factoring can get you the cash you need, but you must carefully weigh the benefits against the fees for this service. Factoring works by selling your invoices to a factoring company, who will provide between 80 and 90 percent of the value upfront, minus their service fee. Customers then pay the lender directly at the designated time and you receive the remainder. This will get you the cash you need immediately, but if you find yourself heavily relying on this service to meet cash flow needs, you probably need to reevaluate your practices because something is off.
Seek Third Party Assistance
The financial aspects of running a business can be really complex and many small business owners are not as well-versed as would be ideal for their position. If you really feel like you are struggling to understand financial statements, improve your cash flow or use your money in the most efficient manner, it may be advisable to pay someone who does understand these things. While regularly consulting with an accountant may be helpful, you may want something more in-depth. There are services for example, that basically provide you a part-time CFO, who can analyze your business in-depth and provide you guidance on improving cash flow and other financial matters. You can work with these companies as needed, or establish an ongoing relationship.
Don’t Pay Bills until They are Due
When it comes to bill payment, there are the people who like getting them out of the way as soon as possible. As soon as it arrives, you pay it. This creates a nice feeling no doubt. But, if this habit is interfering with your cash flow, you may have to change course. Don’t give up money before you have to; as long as you pay it on the due date, you are fine.
So, there you have it. Five helpful tips for improving cash flow in your business. You won’t turn things around overnight, but if you are diligent about making the changes you need to make, and apply them consistently, you will get the results for which you are looking.
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