We’ve all heard that old adage, "cash is king", but it is still relevant today – and perhaps in this competitive, fast-moving world, it is even more important. Here are ten ways to improve your cash flow.
Without a steady flow of cash, your business will run into serious trouble. You won’t be able to pay bills or your staff, make purchases or plan for the future.
Here are ten ways to improve your cash flow and boost your financial efficiency:
1) Forecast your cash flow
It may sound obvious, but it is surprising how many businesses don’t maintain an accurate cash flow forecast. Look at how much cash is coming into your business each month (cash inflow) and how much is going out (cash outflow). With a regularly updated forecast in place, you should be able to identify seasonal peaks and troughs and plan business activities to ensure there is always cash to make payments.
2) Mind the gap
Good cash flow management is all about creating a balance between those cash inflows and outflows. Gaps appear when there is more money going out the door than coming in, leaving your business short. Spot the gaps before they become gaping holes by taking proactive action e.g. chase overdue invoices; negotiate new payment terms with suppliers, etc.
3) Speed up your cash conversion
Convert your products and services into cash as quickly as possible. The sooner you collect cash, the faster you can use it to increase profits or meet financial obligations such as wages or debt payments. Tips for speedier cash conversion include: start sending out invoices immediately after the delivery of goods or services; change your payment terms from 60 days to 30 days and consider offering a small discount to customers who pay their bills early.
4) Make it easier for customers to pay up
Fed up waiting for business cheques to clear? Reduce delays by encouraging customers to make online payments.
5) Create a collections process
Stay on top of overdue payments. Many companies operate a system of reminders that become gradually more serious and formal as invoices become more overdue.
6) Offer credit cautiously
Proceed with caution when it comes to offering lines of credit. According to Dun and Bradstreet, more than 90 per cent of companies grant credit without checking references. Failing to do your homework and checking references puts your business at risk, saddling you with non-paying customers and racking up bad debt.
7) Keep an eye on cash flow continuously
It has been said "look after the pennies and the pounds will look after themselves". If you don’t have a finance manager, consider training an employee to monitor cash flow on a daily basis to ensure there is always sufficient cash in the bank.
8) Plan for any cash shortfalls
Have a strategy in place to meet any cash flow bottlenecks head on. A good, old-fashioned bank overdraft facility may help to tide you over or a short-term loan. Don’t be afraid to shop around for the best deals and keep your bank informed over any big changes to your cash flow forecast.
9) Consult an expert
Sometimes we need help looking at the bigger picture. Working with a specialist bookkeeper or an accountant can be a valuable investment – providing insight into areas that you may have overlooked and helping you with you with your cash flow forecasting to anticipate and plan for cash flow problems.
10) Control business expenses
Look at ways to save money on expenses to improve your bottom line. If you don’t already, start tracking business expenses to stay on top of outgoings.
