For any business, cash flow is king. It’s the one thing that can keep a business moving forward, or stops it dead in its tracks. It’s the oxygen that every business needs to not only survive, but thrive. Forecasting cash flow is a crucial side of your business that demands constant attention, because things can quickly turn bad.
All it takes is a change in the economic outlook, or a few customers to pay later than usual and your cash reserves start to haemorrhage from your account. And this can happen even though your sales haven’t hit any bumps. So how can your business take control to ensure your cash supply is more reliable? Here are some effective ways to improve cash flow quickly and efficiently.
Know what’s in the bank
When you forecast your cash flow, you’ll always have a better idea of what should be sitting in your bank account at any point in time. Knowing when every sale and purchase will impact your bank account is a good habit to get into. It will help you plot out exactly what should happen in 30, 60 or 90 day’s time.
Doing this via something as simple as a cash flow spreadsheet will flag any future issues and allow you to prepare accordingly. If there are periods of negative cash flow forecasted and you’ve identified it early enough, you can take action – whether it’s speaking to the bank about an overdraft or something else. It’s always better to know what’s around the corner, before you get there.
Credit checks and clear terms
Another way to improve your cash flow forecasting is to ensure that the customers you’re selling to have the capacity, information and motivation to pay you on time. While getting paid up front may be the only way to guarantee on-time payment, it’s not always practical. Credit checking customers and clearly communicating your payment terms are simple steps you can take to help ensure you’re paid on time.
While it’s tempting to make any sale for your business, it will count for very little if that new customer doesn’t pay you. A little legwork at the start of the sale could save you a lot of time and resources. Clearly stating your payment terms upfront and on your invoice, as well as how you should be paid also helps.
Offer more ways to pay
Giving your customers more choice in how they pay may not only help you attract new customers, but it could also help them pay you on time. Whether it’s BPAY, EFT by direct debit or via credit card, your business will get paid much faster than by the traditional cheque. Offering some of these may cost a small fee, but it will be worthwhile if you keep cash flowing in or reduce the number of late payments you have to chase. If your customers are late in paying, you should have a system in place that chases overdue payments firmly, but diplomatically.
If you do regular business with your customers, it could be worthwhile looking into setting up automated direct debit or credit card payments with them. Companies, like Ezidebit, offer services that help you set up a schedule of regular payments that automatically come out of your customer’s bank account or credit card. It’s a set-and-forget collection technique that’s much easier for both you and your customers, and it ensures you’re paid on time, every time – which is always good for cash flow.
Have a prioritise payment list
Knowing who has to be paid first can also help your cash flow forecast. The ATO and staff will no doubt be at the top of this list, but as the business owner you’ll unfortunately be further down with your suppliers. Having said that, good customers are usually looked after by suppliers – especially if times get tough. Paying your suppliers regularly and on time may be rewarded later if you ever need a few extra days to pay. Understanding how long you have to pay on some bills can also make the dollars stretch – if you have 90 days to pay, use it if your circumstances change.
Forecast your cash flow better with an Ezidebit direct debit solution. To learn how our payment solution can become part of your business strategy, simply call 1300 763 256.