We know that cash flow is the key to keeping a business afloat. When something interrupts the flow of cash, it can put the whole operation at risk. You need cash to cover your expenses and overhead, so when something goes wrong with your cash flow, it can be devastating. Even if your business is growing and becoming more profitable each year, you can’t let your guard down. If your company’s finances, operations, and/or investing activities aren’t running efficiently, you may have cash flow problems.
For example, if your payables are due before your receivables come in, you will have trouble with cash flow. This means you will not be able to pay your bills on time, which can cause bigger problems like not being able to pay employees on time or maintaining a good credit score.
Here are some methods that you can apply to your business to get improved cash flow:
Motivate your Clients to pay early
Getting the cash in early helps your cash flow, and customers love incentives. If you offer your customers a discount for paying their bills ahead of time, you’re creating a win-win situation for both of you. This will give your clients motivation to prepay. For example, you can offer a discount on yearly prepay.
Run an Inventory check
Take inventory of the items that you sell that aren’t moving as quickly as your other items. These items are tying up a lot of cash, and it could negatively affect your cash flow. By getting rid of these items, you can free up some cash. Get rid of any products that aren’t selling, even if it means selling them at a discounted price. It’s difficult to let go of products you’re passionate about in the hopes that demand will eventually increase, but this scenario is rare. If a product isn’t selling, it’s time to cut your losses and move on.
Send Invoices promptly
By formatting your invoices clearly and concisely, you can help ensure that receivables are received more quickly. Make sure to include the following elements to make your invoices easy to understand:
- Mention the due date in multiple places (top or maybe at the bottom as well).
- Instructions on how payments should be made.
- If you charge late payment fees, make sure this information is included as well.
By taking these measures, you can help ensure the timely payment of your invoices. If possible, use automation in your accounting department. Accounting software like QuickBooks enterprise hosting allows you to keep track of your invoices. Also, with decent accounting software, you can pay your bills electronically and save yourself the stress of having to remember to do it manually each month. This also allows for more efficient use of your cash flow.
Review and Increase pricing
Although it may be scary to do so, raising prices can be a good thing for businesses. This is because clients who understand the value of what they’re getting will be more likely to stick around, even if the price goes up. These are the best kinds of customers to have, as they respect and value your client’s business. They’re also usually the ones who pay on time or even early.
It’s OK to experiment with pricing to find the perfect number. There’s no way to know unless you take a chance. So, review and readjust pricing as needed. You are likely to see your cash flow increase, especially if the clients are satisfied with your services. As a result, your business will be more sustainable in the long run.
Contracts with your Suppliers should be reviewed
If you communicate regularly and effectively with your suppliers, you’re more likely to get better terms from them. Offer early payments in exchange for discounts, and learn the art of negotiation to convince your suppliers to give you a better deal. Negotiation is an essential skill for any business owner, and it can help you get the best possible terms from your suppliers.
Therefore, it’s important to review suppliers’ contracts and determine whether they support your company’s cash flow.
Upgrade your Accounting department
Modern-day accounting requires a lot more than basic accounting tasks; managing day-to-day accounting operations is a demanding task. It is quite essential to provide the accounting team with technical skills and training to keep up with the pace of managing the accounting for your business.
Cloud-based systems like QuickBooks enterprise cloud hosting bring automation to your accounting. It reduces manual tasks and allows more time to focus on different aspects.
Automation is the key when it comes to unpaid invoices — especially if you’re looking to avoid a cash flow crunch. By re-evaluating your clients’ processes and implementing automation, you can help them capture payments faster.
Consider automation as a way to streamline your accounts receivable process and get paid sooner.
Having a healthy cash flow for your business comes from having efficient and smooth operations. Implementing some or all of the steps mentioned above will help you improve your business’s cash flow, but you also need to be mindful of the decisions you make about marketing, customer service, product or service development, and acquiring new customers.