As a small business owner, you know that maintaining a steady cash flow is vital to the growth and longevity of your business. The essence of successful cash flow management is regulating the money flowing in and out of your business but this can sometimes require a bit of a juggling act. You have to stay on top of receivables, manage inventory and pay creditors on time. Having consistent, reliable cash flow makes it easier for you to budget and plan for growth. Here are our top 7 tips to improve your cash flow.
1.Organise your billing schedule
Bill early and bill often. Don’t forget to send out the invoice or delay the process, as this will lead to cash flow problems down the line. Ensure you are not the hold up when it comes to being paid. You can use software packages to keep everything organised you can also use billing schedules in the software that will automatically flag overdue accounts. 2. Payment on order
Where possible, consider other options like cash on delivery. This is not possible for all businesses, so you could consider deposits on orders and payment milestones throughout a project or service. This reduces the need to chase late payments and helps you get access to the money sooner.
3. Increase your price and get paid sooner
You may be able to offer your customers discounts if they pay their accounts early, for example within 2 weeks instead of the usual 4 weeks. Alternatively, you can consider a penalty for late payments. Build discounts into your price by actually inflating your prices by your discount amount for later payments. Your electricity company does this and so should you.
4. Stretch out your payables
Negotiate with your vendors for longer payment terms. If you hold a good relationship with your suppliers, you may be able to move from a 30 day to a 60 terms. Remember, the aim is to keep money in your account longer. Think creatively. You will never know if you don’t ask.
5. Rethink your pricing
Many small businesses hesitate to increase their rates because they’re afraid they’ll lose customers. However, customers actually expect their suppliers to institute small, regular price hikes. Also, be sure to check out your competition on a consistent basis. If they’re charging higher prices, you should too.
6. Avoid overstocking
Mange your stock levels carefully and avoid overstocking. Overstocking ties up cash and incurs additional warehouse and transport costs. Avoid buying more than you need when suppliers lure you with big discounts. If you do have to buy more, review item number 4 above and get longer payment terms.
7. Automate your receivables
Consider using products like direct debit where suitable so that you have control over being paid.