If you run a business and your sales and profits are improving every year, it’s clear that you’re doing something right. However, you should remain alert because even big and lucrative organizations might face cash flow issues if their finance processes are inefficient.
The foundation of your business is cash flow. While a negative cash flow is bad news for businesses, a positive cash flow indicates that you could build and run a successful firm. You can put some of the suggestions in this article into practice whether you’re having trouble with negative cash flow or are attempting to boost your positive cash flow to get your business where it needs to be.
- Consider Leasing
As leasing equipment, materials, and rental properties is often more expensive than buying, focusing only on your net income after expenses may seem paradoxical. However, unless your company is overflowing with cash, you’ll need to keep a steady cash flow for day-to-day operations. Furthermore, you can pay in smaller amounts by leasing rather than purchasing, which helps your overall cash flow. Another advantage is that leasing payments are deductible as a business expense when filing your taxes.
- Send Invoices to Your Customers Immediately
Sales and invoices are the lifeblood of your company, and you can’t get paid (make sales) if you don’t submit invoices to your clients. Therefore, it is essential for you to track and maintain the billing of your customers because the faster you send an invoice, the quicker you’ll get paid, which will boost your company’s cash flow. Consider migrating to cloud-based accounting software with appealing and simple-to-create invoices if your present invoicing procedure is stressful.
- Improve Your Inventory
If your company sells products, make a list of the fast and slow-moving items. The second thing you want to do is stock more of the items that sell quickly and less of the items that don’t, as the latter tie up your cash and have an adverse effect on your cash flow. You don’t want your money to be tied up in a single product while running a stock-handling business; instead, you want to be able to sell more products quickly, which will increase your company’s long-term scalability. You can decide to sell them off at a discount if you have many products tying up your money. Although it may be challenging to give up on a product you firmly believe in, it’s essential for the sustainability of your company that you stay objective and unsentimental.
- Get Your Customers to Make Invoice Payments on Time
Another strategy to enhance your cash flow is encouraging your clients to pay on time. Here are some strategies you can employ to ensure your money is not held up in debt by your customers:
Your consumers may forget to pay you from time to time, so you may need to remind them. Sending an email a few days before the scheduled payment date, on the day the payment is due, and/or a few days after the payment deadline is a good idea. You can also call them and continue sending emails to remind them if they don’t make payments or answer your follow-up emails. You don’t need to manually send these reminders when using accounting or invoicing software because the system will do it for you when a customer is past due on their payments.
- Offer incentive
Another strategy to encourage your customers to pay their invoices on time is to provide discounts to consumers who pay within a specific time range. If your billing terms require clients to pay within 20 days after receiving your invoice, and you wish to obtain payments sooner, you can adjust the terms to a shorter time frame or give incentives.
- Consider late payment fees.
You might also include late payment charges in your invoice payment policy. To accomplish this, set a regular time for your invoices to be paid and keep to it. Having a policy for late payments will assist you in receiving your money when it is due while distinguishing you as an expert in your industry. To avoid confusion and maintain transparency with your consumers, ensure you are upfront about how much you will charge and when you will begin charging them. You should also research how much you can charge for a late payment fee, as this varies by state and sector.
- Invoice factoring
If the tactics above aren’t successful, you can seek invoice factoring. Invoice factoring can be a great option if you’re experiencing cash flow problems due to unpaid invoices. You can trade your outstanding bills to a factoring organization in return for instant cash via invoice factoring. Even though the organization gets a small percentage of your earnings, the good news is that you won’t be trapped waiting for payments from late payers.
- Perform Credit Checks on Customers
If a client does not wish to pay you in cash, conduct credit checks to confirm that the customer is creditworthy. It is likely that a customer with bad credit will not pay on time. Even if you strongly want to make the deal, remember that doing so would affect your company’s cash flow. If you decide to sell to such a customer, make sure to charge a high-interest rate.
- Increase Your Prices
Consider increasing the price of your goods and services if you’re having trouble managing your cash flow. You should keep an eye on what your competitors are charging, consider any increases in the cost of the equipment you use for your operations, assess how many people you need for your inventory assembly and services, and make the required adjustments.
Maintaining competitive prices while ensuring that you and your staff are fairly compensated for your efforts is a tricky balance. If your rates are too low, you can be undervaluing your firm because sometimes lower pricing can give the impression that it is less qualified. Because you want to create sales, but you also want to turn a profit at the end of the day.
Even if you still want to maintain competitive prices, you must raise your rates when necessary in order to boost your cash flow and expand your business. It is important to continue monitoring market developments and adjusting your rates as necessary, even if you now think your pricing is appropriate. Failure to make changes could be terrible for your company and significantly impact your cash flow.
- Use Electronic Payment
If you pay electronically, you can put off making payments until the morning of the due date. This buying period benefits your financial flow. Furthermore, if you use a business credit card to make payments, some provide a grace period of up to 21 days, which can help you enhance your cash flow and even gain cash back rewards. However, avoid piling up debt and pay as soon as feasible.
- Expand Your Sales Market
Finding a new revenue stream for your company is another tactic that can help boost your cash flow. Here are some suggestions to start moving in the right direction for your business:
- Offer new goods or services
Consider the goods or services your company already offers, then brainstorm other products you could offer. Here, you have room to be inventive and think beyond the box. Additionally, you want to pick a service or product that will sell well and work well with your current products.
For instance, if you own a coffee shop, you may start selling lemonade in the summertime. Likewise, if you run an event planning company, you might provide cleaning services as a part of your services. You might even consider renting out your business’s spacious outside area for events and parties on weekends or when you are not using it.
- Develop a fresh marketing strategy
You might want to adjust your marketing plan if you don’t wish to provide new goods or services. Consider new strategies for marketing your company, and if there are any demographics you haven’t been focusing on that might profit from your goods and services, start focusing on them. You can significantly improve your company’s cash flow by acquiring new clients.
- Encourage your customers to make additional purchases.
You can increase your cash flow by getting your current customers to make additional purchases. Offering product bundles, where you sell related things together to stimulate increased spending, is one way to accomplish this. Additionally, you could promote goods that fit your clients’ needs. For instance, if you use an online marketplace, you might promote additional products the customer might find exciting or products that other customers have bought. If you don’t want to sell a brand-new product, this tactic can help you increase sales and cash flow.
- Review The Operating Costs for Your Company.
Increasing the amount of money coming into your company is only one aspect of managing cash flow. You must cut back on the expenses your company incurs. Here are some pointers to assist you in reducing business costs and managing cash flow:
- Limit unnecessary spending
When you examine your company’s cash flow and analyze your spending, ask yourself whether the money spent on your expenses was essential, if so, how crucial they are and whether there might be a less expensive alternative.
Consider your responses to these questions and, if you can, strive to reduce your spending or eliminate any unnecessary expenses. Managing your cash flow and expenses may seem difficult initially, but you and your company will feel better if you do it.
- Buy more efficient equipment.
Investing in better and more sophisticated technology and equipment is one way to boost your business’s speed and efficiency. The equipment may be pricey, but it will save time and allow you to spend less on wages. Investing in more efficient equipment will boost your company’s productivity, resulting in more sales and better cash flow.
- Talk to Your Vendors and Suppliers
Your firm needs to purchase goods and materials, but you also need to consider whether you are overspending on them. Negotiating a bargain with your vendors and suppliers or, if necessary, looking around for other possibilities can help you reduce expenses and improve your cash flow. Consider the following tips:
- Request for bulk inventory rates
If you buy things in bulk, some vendors, especially those with whom you have a solid working relationship, might be more than happy to give you discounts. Don’t overlook talking to your vendors about this possibility since it can be beneficial.
- Negotiate better credit terms and prices
Try requesting discounts from your suppliers and vendors if you have a long-standing relationship with them. You might also get other reductions, better prices, and conditions in addition to bulk inventory rates.
- Look for other options.
In some circumstances, if your existing provider is unwilling to renegotiate terms and pricing, it might be preferable to explore better possibilities from other vendors and suppliers. Look for a provider who will sell you goods at the required price and conditions.
- Take Out a Small Business Loan
A short-term loan is another option to improve your cash flow. A lender provides you money as part of a short-term loan, which you must repay in several installments over a limited time. The lender also authorizes you to withdraw up to that amount of money whenever you need it, and you are only required to make payments on the amount you spent.
If you find it difficult to borrow money, you might want to think about getting a cash flow loan for the following reasons:
- Purchasing stock
- Take on a lucrative new venture
- Get new machinery
- Grow your company
A cash flow loan may be the perfect solution if you’re having trouble with cash flow.
- Open a Business Savings Account
Consider opening a business savings account to earn interest on your money if you don’t already have one. This tactic is a straightforward and efficient way to make some money and a great technique to guarantee that your company always has a cash flow cushion. Additionally, make sure to deposit your funds in a high-yield savings account so you may earn additional interest. The best high-yield savings accounts provide interest rates more than 17 times the national average, allowing you to make more money from your savings.
- Consider a Business Credit Card With Cash Back Rewards.
A cash-back business credit card may be wise to make money off your expenditures. A cash-back credit card is a simple way to gain money if you use it responsibly and can afford the monthly payments.
- Pay Your Merchants and Suppliers at the Right Time.
Think carefully about when to pay your suppliers and merchants. Make sure to pay before the due date if your vendor gives discounts for early payments so you can save some money. If the vendor doesn’t provide discounts for early payments, pay when it is most convenient for your company. For instance, let’s say your payment is due on February 2nd. But, you know that February brings in more business than January does for your company. To report positive cash flow in January, pay your bill on the final day it is due. Nevertheless, you may want to use your company credit card if you require additional time to pay your payments. In this manner, you can gradually pay your bills instead of everything at once.
The outcome of efficient and effective operations is a healthy cash flow. By tracking your cash flow and taking steps to improve and maintain it, you’ll be on track to running a successful business. Even though you can increase your company’s cash flow by putting some of the above strategies into practice, you also need to ensure that you’re choosing the best course of action for your company in terms of marketing, customer service, product, or service development and acquiring new clients. Regularly reviewing and updating your business plan will ensure that you anticipate trends and challenges before they affect your profitability.