Powering Your Business Cash Flow

cash flow analysis

Business cash flow is the life blood of a company. Cash that regularly flows into a company goes into the essentials—everything from paying for new materials and equipment, electricity, rent, to marketing and employees’ salaries. When cash flow projection isn’t met, companies are in danger because they lack the funds needed to support the costs of keeping the business up and running. Monitoring your business cash flow helps you keep track of cash flow from operations and cash flow from financing.

Funding Your Small Business

Power up your business with these cash flow management tips:

1. Complete and send invoices promptly

Some clients take a long while to pay even after receiving their invoice, excluding those who delay payment due to financial difficulties. This means you receive your income at a much later time. Avoid waiting for your money for ages by sending out your invoices to your clients promptly. Include a payment due date with payment terms and conditions. Receivables need to be collected immediately.

2. Deposit payments asap

The sooner you deposit the payments you receive, the sooner you can put the money to fund your business, speeding up cash flow and providing cash on hand for daily expenses. Depositing payments quickly and regularly is a sign that business is healthy since you have steady, working capital available when you need it.

3. Deposit cash balances in accounts that earn interest

Keep the bulk of your cash in accounts offering higher interest earning rates like savings accounts, certificates of deposit (CD), or time deposits. You can opt to open an interest-earning checking account which requires a minimum maintaining balance. Transfer funds from higher-earning accounts to your checking account which will then go to bills payment.

4. Follow up on pending payments

Call and send an e-mail to customers delaying payments. It’s a possibility that some simply forgot to pay. Check with your accounting department to make sure they’re tracking all invoices and pending due payments. For customers who cannot pay due to financial problems, oblige them to pay a fraction of the total amount within a given timeframe. It’s better if you both talk this through because situations vary. If they fail to comply even after giving them a second chance, the next logical step would be to consult a collection agency or attorney.

5. Manage inventory efficiently

Efficient inventory management is also crucial to maintaining steady cash flow. The less money you need to spend on inventory, the more you contribute for cash flow. You can lessen inventory costs by ordering for additional inventory only when you reach the minimum level.

6. Require deposits on big and custom orders

One-of-a-kind products have more requirements and are sometimes more labor-intensive than regular orders. They also have a limited sales value. A deposit safeguards you from huge financial risk should something go wrong especially in the delivery process. The same goes for bulk orders.

7. Offer early payment incentives

Trade discounts for early payments is a useful tactic for encouraging customers to pay on time, which means money for your business sooner rather than later. You might not be able to afford to give much in terms of early payment discounts, but many customers will still jump at this chance, as they’re looking for ways to lessen expenses. Trade discounts typically run from 1%-5% of the total amount due.

8. Sell excess inventory or obsolete equipment

Idle equipment just takes up space and capital which can be used more productively. The same goes for excess inventory, which can easily go obsolete. Selling them and using the proceeds to fund your business makes more sense than retaining them and incurring maintenance expenses.

9. Pay bills just right on time

You might be tempted to pay bills as soon as they come just to get them out of the way, but sometimes you never know when an emergency strikes and you need cash on hand which you can get from the money allotted for bills. This is recommended for bills that do not incur interest and late charges. This might not be a consideration for some, but it still serves as insurance that you have money to use in the event of an emergency. If the due date is near and you don’t need to use the money for a more pressing matter, then you can breathe easy and pay the bills. Electronic banking will make the job easier for you.

10. Review and cut unnecessary expenses

Review all your expenses and only decide to cut those that wouldn’t harm profits. For example, you can choose to switch to a biweekly payroll from a weekly payroll if it could reduce payroll processing costs. Or instead of cutting inventory costs, redirect the cash flow into an area that needs more attention and that will contribute to generating more cash flow, like better marketing. Click here to know more.

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