Cash flow, as they say, is the lifeblood of any business. It doesn’t matter whether you’re making thousands of cars a year or selling lemonade to neighbours, if you’re stuck waiting for payment from customers then you can’t pay your suppliers for the next batch of products to sell.
Here are 10 tips to help you improve your cash flow.
Tip No 1
Consider giving discounts for payments upfront. Some businesses will have a discount window of a month that customers must pay within to receive the discount. This is easier to enforce than a penalty for late payment and is more attractive to customers too.
Tip No 2
Take as long as you can to pay your bills without incurring a late fee. If a supplier gives 30 days, then take the full 30. Pay regular suppliers before others; early payments can generate goodwill and improve the likelihood of obtaining credit.
Tip No 3
Invest surplus funds in a high-interest bearing account or other financial vehicle. There’s no point having idle money in a business, but just make sure you can get your hands on it quickly if the need arises.
Tip No 4
Create a cash flow forecast. Know when the money should come in, when it is likely to come in, and when you will have to pay it out. Knowledge is power as it will help you prepare for the inevitable delays.
Tip No 5
Issue your invoices as soon as possible. This is one task that should be first on the list every day. Once sent, make sure you follow up the day after the invoice is overdue. A polite phone call to jog the memory or a second email can help things along.
Tip No 6
Give customers many options for payment and emphasise your preference for electronic payment such as direct debit.
Tip No 7
Split payments for longer projects so that you’re not waiting for the full invoice at the end of the job. This has the advantage of providing some security of payment as well as increasing cash flow.
Tip No 8
Monitor your stock and replace products that are unlikely to sell. Focus on the better selling, higher-margin items.
Tip No 9
When things get tight, triage your payments. Call all your suppliers and negotiate extended periods or deferred payments. Don’t pay the biggest debt first, pay the most important.
Tip No 10
Link sales commissions to invoices paid rather than revenue billed. A cold call from your accountant to a customer asking why a bill is unpaid is going to be less well received than the sales rep giving a friendly reminder at the next meeting. It also gives the sales person a reason to speak to the customer again - and perhaps lay the ground for another sale.
(Original article sourced from RAN One Pty Ltd)