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 running a cafe business in a small community, 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 put more money back into your business bank account.
Cash Flow Tip No 1 – Consider giving discounts for early payments. If your normal payment terms are 30 days, offer a discount for payment within 7 days (or even more if they pay upfront). Discounts are easier to enforce than a penalty for late payment and are also much more attractive to your customers.
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. If a supplier offers a big discount for early payment, work out whether it is better to take the discount or keep the money in your bank account for longer. Pay regular suppliers before others to maintain goodwill and improve the likelihood of obtaining future credit if needed.
Cash Flow Tip No 3 – Invest surplus funds in a high-interest bearing account or other short term investment. 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 – Build a cash flow forecast and use it as a basic business tool. Know when the money should come in, when it is likely to come in, and when you will have to pay it out. A cash flow forecast is different to a budget as it is constantly updated for your latest expectations – it doesn’t sit in your top drawer gathering dust. Knowledge is power as it will help you prepare for the inevitable cash shortfalls.
Cash Flow Tip No 5 – Issue your invoices as soon as you can. This is one task that should be first on the list every day because if you don’t bill your customers you can’t be paid. 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. Don’t be afraid to take stronger action if the invoice remains unpaid.
Tip No 6 – Give customers as many options for payment as possible and emphasise your preference for electronic payment such as direct debit which have less processing fees than credit cards and go straight into your account.
Cash Flow Tip No 7 – Ask for progress payments for longer projects so that you’re not waiting to the end of the job before you can issue the invoice. This has the added advantage of providing some security of payment as well as increasing cash flow.
Tip No 8 – Constantly monitor your stock levels and replace slow moving products with better selling, higher-margin items. Carrying too much inventory is the classic cash flow killer in most businesses.
Cash Flow 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.
Cash Flow Tip No 10 – Link sales commissions to invoices paid rather than revenue billed to motivate your sales team to focus on cash flow as well as sales. The sales team are likely to have a better relationship with the customer than your accounts team, and a friendly follow up gives the sales person a reason to speak to the customer again – and perhaps even lay the ground for another sale.
Craig Ridley is the Head Coach at
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