Cash flow is the lifeblood of every business. When it comes to managing your cash flow, there are a few key things to keep in mind. In this article, we will discuss some tips to help you stay ahead of the game and maintain a healthy short-term cash flow for your business. By following these tips, you’ll be able to keep your head above water and avoid any financial disasters.
According to a study by Intuit, nearly 60% of established businesses face cash flow problems at some point. This is not surprising when you consider that most businesses depend on customer payments to keep their doors open.
The first step to managing your short-term cash flow is understanding where your money is coming from and going. This may seem like a no-brainer, but you would be surprised how many businesses don’t have a clear handle on their finances. If you don’t know where your money is coming from, it will be very difficult to manage your cash flow effectively.
Once you understand your financial situation, you can start working on ways to improve it.
Six Ways to Improve Your Short-Term Cash Flow
There are several things you can do to improve your short-term cash flow. Here are a few ideas to get you started:
1. Don’t Wait to Send Invoices
One of the biggest mistakes businesses make is waiting too long to send invoices. This can significantly impact your cash flow, as it can take weeks or even months to receive payment. If you want to get paid quickly, sending invoices out as soon as possible is important.
There are a few different ways you can do this. First, you can set up automatic billing for your customers. This way, they will be billed automatically regularly, and you won’t have to worry about sending invoices manually. Second, you can use online invoicing software, which will allow you to send invoices instantly and track payments. Finally, you can offer discounts for early payment. This can be a great incentive for customers to pay their invoices quickly.
2. Carefully Manage Credit Policies
Any business owner will tell you that your credit policy is one of the most important things to consider. This is especially important if you offer credit to your customers. It’s important to be careful about how much credit you extend and have a system in place for collecting payments. Failure to do so can result in serious financial problems down the road.
When drafting your credit policy, consider what terms you’ll offer, how you’ll verify customer creditworthiness, and what methods you’ll use for collecting payments. By taking the time to thoughtfully develop your credit policy, you can minimize the risk of problems down the road.
3. Keep an Eye on Inventory
Inventory can be a big drain on your cash flow if it’s not managed properly. If you have too much inventory, it can tie up a lot of money that could be used elsewhere. On the other hand, if you don’t have enough inventory, you could miss out on sales. The goal is to maintain enough inventory to meet customer demand without tying up too much capital in stock. This can be a delicate balancing act, as customer needs can vary greatly from one day to the next
There are a few different ways to manage your inventory. One popular method is to use Just in Time (JIT) inventory management. With this approach, you only order inventory as needed, which can help reduce carrying costs. Another option is to implement an Inventory turns system, which ensures that your inventory turns over at a set rate.
4. Pay Bills Strategically
Many people dread opening their mailboxes and finding a pile of bills waiting for them. However, there are ways to minimize the financial impact of bills and improve your cash flow. One strategy is to pay your bills strategically. This means paying your bills when it’s most advantageous for you, not when they’re due. For example, if you can wait a few extra days to pay a bill, do it. This will give you more time to bring in revenue and will free up cash flow in the short term. Another tactic is to set up automatic payments for recurring bills. This way, you’ll never have to worry about missing a payment or incurring late fees.
Of course, you don’t want to wait too long to pay your bills, as this can damage your credit score. But paying them a few days late won’t have a major impact and will give you some breathing room regarding cash flow.
5. Offer Payment Plans
If you’re a medium-sized business owner, keeping a close eye on your accounts receivable is important. This is the money that customers owe you for goods or services that they’ve received. When customers don’t pay their invoices on time, it can strain your cash flow and make it difficult to meet your own financial obligations.
One way to encourage customers to pay their bills timely is to offer them a payment plan. This allows them to spread out their payments over a period of time, making it easier for them to pay their bill in full. At the same time, this can help you improve your cash flow, as you will receive at least some payment upfront. Payment plans are a win-win for both parties and can be a great way to keep customers happy and improve your short-term cash flow.
6. Negotiate Your Payments with Suppliers
If you’re struggling to make ends meet, it’s important to consider your expenses closely. One area where you may be able to save money is in your payments to suppliers. Many businesses are afraid to negotiate with their suppliers, but it’s quite common and can be a great way to improve your cash flow.
When negotiating with suppliers, you can try a few things to get a better deal. First, see if you can get extended payment terms. This means that instead of immediately paying for your goods or services, you can pay them 30, 60, or even 90 days later. This gives you more time to bring in revenue and can help ease the strain on your cash flow. Another option is to ask for a discount. This can be especially effective if you pay your goods or services upfront.
Of course, you don’t want to damage your relationships with your suppliers. But if you’re honest about your financial situation and explain that you’re trying to improve your cash flow, they may be willing to work with you.
Final Thoughts
Improving your cash flow can be challenging, but it’s essential for the success of your business. By following these tips, you can get a handle on your finances and ensure that your business has the money it needs to grow and thrive.
If you need help managing your cash flow or have any questions, please don’t hesitate to contact us. We’re here to help you every step of the way.
