If you don’t collect enough money from sales to cover your bills, then you’re going to have a cash flow problem. It’s as simple as that and a problem that even the most profitable companies face from time to time.
We take a look at 10 ways in which you can try to improve your cash flow in your business.
Lease, don’t buy
Since leasing supplies, equipment, and property usually ends up being more expensive than buying, it can seem to be a bit of a counterintuitive step. But unless your company always has a positive cash flow, you need to think about how to maintain a steady cash stream to keep day-day operations running. Leasing allows you to pay in small increments, which helps improve cash flow. An added bonus is that lease payments are a business expense, and thereby can be written off on your taxes.
Offer discounts for customer who pay early
Everyone loves an incentive, so think about offering discounts to encourage customers to pay their bills ahead of time. It’s a great win/win situation for both of you, as they cut costs, and you help keep a positive cash flow.
Conduct customer credit checks
If a customer is looking for extended payment terms be sure to conduct a credit check, especially before you sign them up. If the client has poor credit, there’s a real risk that you won’t be receiving payments on time, so you need to factor that in, if you decide to take them on as a customer. And also, if at all possible, try and set up their payment with a direct debit.
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Form a buying group
Suppliers usually give discounts to large firms who buy in bulk, but don’t despair if you are a small business. Simply think power in numbers, and find other like-minded companies willing to pool their cash in order to negotiate lower prices with suppliers.
Improve your inventory
Review the inventory of goods you buy that aren’t moving at the same pace as your other products. They tie up a lot of cash and could hurt your cash flow. Instead of buying more of what doesn’t sell, get rid of it, even if that means selling it at a discount. Be objective, not emotional and if you’re not sure where to start, we’ll be more than happy to provide an independent viewpoint.
Send invoices out immediately
There’s no point doing the work if you don’t then invoice for it immediately. Invoices should be easy to read and the terms clearly stated. Ensure that the due date is stated in a few places (preferably in bold), including at the top of the invoice and on the payment slip at the bottom. Include clear instructions regarding payment types accepted and whether you accept credit cards.
If you charge late payment fees, make sure you include this information as well.
If you haven’t invested yet in invoicing software, you might want to give it some thought as it will help save time and make you more efficient. We work with lots of different types of accounting software, so are happy to provide you with some advice and guidance.
Use electronic payments
Keeping money in your account for as long as possible can massively help with any cash flow problems. For this reason, if any of your accounts payable can be paid electronically, don’t pay the bill until the morning it is due.
Also think about using a business credit card, especially those that also offer cashback. This will help improve your cash flow, at least in the short term, but use the card wisely. The last thing you want is to pile up too much debt.
Pay suppliers less
If you maintain friendly, regular communication with suppliers, you will have a better chance of landing better terms with them. Offer suppliers early payments if they’re willing to give you a discount in return.
Upsell to your existing customers
Very few businesses only sell one product or service, so review your existing client relationships and see if you can encourage them to spend more with you. New clients are normally more expensive to service, so this is an easy way of increasing your cash flow with clients you trust to pay you on time.
Increase pricing
Increasing your prices is a concept that scares many business owners, as they’re worried it will lead to reduced sales. But it’s OK to experiment with pricing to find out how much customers are willing to pay. You’ll probably find the person most worried about the price increase is you!
Need more advice about improving your cash flow?
Healthy cash flow is the result of operations that run efficiently and smoothly. While implementing some or all of the above ten steps should help you increase your business’s cash flow, you’ll also want to make sure you’re making the right decisions regarding your marketing, customer service and product or service development.
That’s where we come in. As experienced local accountants who offer a range of tax accountancy, and business growth services , we’re here to help you review your business plan on a regular basis to ensure you anticipate trends and challenges before they impact your profitability.
