Maintaining Healthy Cash Flow for Your Business
Healthy cash flow is crucial for the success of any business. Ensuring positive cash flow involves careful management of the funds flowing into and out of your company. The difficulty often lies in the gap between the deadlines for the payment of your bills and the terms for payment that you have offered your clients. Here are some tips to help you maintain healthy cash flow.
To properly manage cash flow, estimate income and expenses for the coming week, month, and quarter. Be sure to collect information from everyone in your company that handles finances, including salespeople, accountants, and collections agents. Consider the payment histories of your clients, the terms with your suppliers, and all upcoming expenditures such as rent, utilities, salaries, and supplies. Don’t be overly optimistic in calculating your projections, as you want to be aware of any possible future difficulties with company cash flow so that you can take steps to prevent them.
Use Efficient Collection Techniques
Encourage clients to pay promptly by sending out invoices as soon as work is performed or products are delivered. As a further stimulus, reward customers who pay early with discounts. As soon as you realize that payments are delayed, follow up with inquiries. For habitually late-paying clients, insist on cash on delivery, and for large orders, require deposits in advance.
Manage Payables Carefully
Booming profits have little meaning if your expenses are out of control. If you discover that your company is spending too much money, examine expenditures carefully and find ways to cut down. Take advantage of the terms of your vendors and other creditors to pay your bills when they are due and not before. When dealing with vendors, sometimes flexibility of terms is even more important than having the lowest price.
Be Ready for Shortfalls
No matter how carefully you project your cash flow and attempt to compensate for difficulties, shortfalls occasionally occur. Prepare for these emergencies by establishing a line of credit with a financial institution before you need it. Consider factoring your accounts receivables for a quick influx of working capital.
For more advice on maintaining healthy business cash flow, contact ASA Capital Funding.