Oct 27 2016
As many business owners know, properly managing your cash flow is imperative to keep business operations running smoothly. Here are six useful tips all business owners can use to help improve how their cash flow is being managed.
One of the most effective ways to avoid cash flow issues is through forecasting. With a cash flow forecast, you will be able to see month by month, when you should expect a surplus and when you will have a cash deficit. Forecasting often uncovers expenses that the business was unaware of and allows the business to make necessary cuts in spending. In addition, forecasting is an effective method for planning which month it can afford to make expenditures to help grow the business.
2. Organise Your Invoices
Schedule time each week to send out reminders on invoices. Some businesses offer a financial discount to clients who pay the invoice in a certain amount of time. If you have a customer with a poor credit profile, you should require a large deposit upfront before providing a service. Finally, if your own efforts do not produce the debt, you can enlist the help of a debt recovery specialist. Businesses lose far too much money on unpaid invoices, a strong credit control system will help reduce these numbers and strengthen cash flow.
3. Use the Right Software
A business also needs to monitor its cash flow regularly. To achieve, you can use a cloud based software solution to monitor cash coming into and leaving the business. Software of this kind allows businesses to seamlessly send and receive payments from one platform.
By making payments easier for customers, your invoices will be paid in a timely fashion. Furthermore, using a UK faster payments service allows you to schedule recurring payments well in advance and also offers the flexibility to make last-minute payments in a matter of hours rather than days. In addition, you can place controls over who can authorise payments to eliminate the risk of unnecessary spending.
As a business, your goal should be to have your customer’s payments coming in sooner than your outgoing invoices are due. Financing big capital investments is a good tool to help manage a positive cash flow.
4. Payment Terms
Another effective cash flow management tool is creating payment terms with your customers and your suppliers. As a business, your goal should be to have your customer’s payments coming in sooner than your outgoing invoices are due. When you are negotiating contracts with suppliers, try and negotiate the longest payment time frame you can.
At the same time, try to shorten the time customers have to pay you, without damaging your relationship or losing the potential client. Once you have negotiated the longest payment terms, make sure you use the entire time due before you pay and keep the money in an interest-bearing account.
5. Be Careful with Large Expenditures
While using a line of credit to pay for day to day operations is a bad business practice, financing big capital investments is a good tool to help manage a positive cash flow. It can be tempting to use a surplus of cash to make a large capital expenditures; however, a business should save that surplus for when revenues are down or an unexpected expense arises. Financing, especially when interest rates are favourable, is a more effective way of paying for a large capital expenditure.
6. Be Prepared
Finally, while the goal is to prevent a cash flow shortage, it is also important to be prepared for one if it happens. A business should have an open line of credit that it can turn to as needed. This will help the business stay afloat while it rebuilds its cash flow. If you do not have a line of credit, you can consider using your outstanding invoices as collateral as for a short-term loan. This should be a last resort as it can be expensive, but it is important to know it is an option in a time of need.
Keeping an eye on cash flow should be an integral part of every business owner’s weekly tasks. By following these 6 tips, your money management should become much more effective.
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