6 Strategies To Improve Cash Flow For Your Business
There is no place for complacency in business because even if you are on a roll today and enjoy an upswing in sales that increases profit year after year, you must stay alert and awake to sustain the trend. Every business would like to experience profitability consistently, but it needs some hard work to ensure that functions like finance and operations together with investment activities run efficiently. When the back end support weakens, it is not surprising that even profitable companies suffer from cash flow problems that manifest in the form of higher outflow of funds than what comes in. Only when you can ensure that more money comes into business than what flows out that you feel confident about business sustainability and growth. Balancing the cash flow is not always easy, but you must implement the right strategies based on the ground realities. Check out how you can leverage debtor finance to increase your cash flow in order to grow your business.
The cardinal rule to maintain steady cash flow is to ensure that your payables or debts do not fall due for payment before your receivables or sales proceeds start flowing in. Being unable to maintain the sequence will evidently put stress on the cash flow, and you will not be able to pay your bills on time. It marks the beginning of a series of problems like the inability to make the payroll on time that can raise questions about your creditworthiness. To stay away from cash flow problems by balancing the flow of funds well, the following strategies should come in handy.
Prefer leasing over buying
Whether leasing is better than buying is a hot topic for debate because apparently, it seems that if you lease equipment, real estate or supplies, you end up paying more than what you would have paid for buying it. However, the conclusion seems right if you are focusing only on your earning or income after paying off all expenses which in commercial parlance is the bottom line. You must maintain a steady flow of cash on a day-to-day basis unless you are too much buoyant with cash which happens only for a lucky few. Unlike buying that entails heavy outflow of funds, leasing involves making small payments at a time every month that helps to manage cash flow better and even improve it. Most importantly you can write off leasing expenses which from an accounting perspective is a business expense.
Classify customers by checking their credibility
All customers are not alike at least when it comes to making timely payment for sales made to them. Insist for a cash payment from customers to maintain a steady cash flow, but if you find some customers reluctant to pay you in cash, you must check their creditworthiness before engaging in transactions with them. Customers with poor credit will never make timely payments, and it will be tough for you to put up with late payments as it hurts your cash flow. When dealing with customers with doubtful credit history, you must factor a high-interest rate into the deal to cover the costs of late payment.
Tackle non-moving inventory wisely
Inventory for business is equivalent to cash, and any inventory that does not move or moves at a snail's pace could dent your plans of maintaining steady cash flow. Check your inventory critically to identify non-moving and slow moving stocks and first stop buying any more of these items. At the same time, think about ways of liquidating these stocks to recover as much money as you can even if it means selling it at a discount. Even if you have a remote feeling that the idle products could become remunerative some day, shed your emotions and take a realistic decision that may sound tough but can give results.
Speed up receivables by offering discounts
Going back to the basics, you must focus on the aspect of speeding up the receivables so that there is always a steady flow of funds that gives you the confidence of honoring your payment commitments. You can offer incentives to your customers to encourage them for making payments before the agreed payment dates as it would be very attractive for them as much as it would be for you to receive the payments early. Indeed, the customers you approach must have enough creditworthiness to come forward and make early payments so that you can maintain smooth cash flow.
Push back bill payments
One way to improve cash flow is to take the maximum available time in making bill payments by waiting until the last day of payment. This is very much possible by staying alert and sensitive about the due dates and then making online funds transfer or electronic payment on the penultimate date. By delaying the payments within the permissible limits, you get enough elbow room to manage the cash flow efficiently. Another way to prolong the payment is to take advantage of the 21 days credit period offered with business credit cards that could also come with additional cash back benefit. However, you must manage the payments well so that you do not end up accumulating debts.
Avail bulk discounts in buying
Being an intelligent buyer goes a long way to strengthen the cash flow of your business. Develop appropriate purchasing strategies that allow buying in bulk some high-value items at a good discount. You can enter into volume agreements with suppliers that help to take partial deliveries and put less strain on the inventory cash flow while still enjoying the discount. Alternatively, to enhance your buying power, you can team up with other companies that buy similar products as yours and create a pool of buyers that helps to leverage your bargaining power for better discounts.
Lastly, you can keep monitoring the price of your products and judge the market constantly so that you have a better feel of the pulse of customers. This should help to evaluate market and customer sentiments correctly that provides opportunities for experimenting with pricing to find the perfect number that gives a boost to profitability which in turn supports the cash flow and keeps it's steady.