When you run a small business, cash flow is typically one of the things you end up stressing about the most. Whether you need to find the money to pay yourself, your team, your suppliers, or other bills, it can be incredibly scary trying to work out where the cash is going to come from if you’ve had a lean month or even year. Happily though, there are plenty of strategies you can use to help your venture’s cash flow get under control. Read on for some tips to utilize today.
Minimize Late Payments
One of the best things you can do to get your firm’s cash flow back on track is minimize late payments. When a lot of clients owe you money on a continual basis, this can have a profoundly negative impact on cash flow. However, if you put some strict payment terms in place, and/or encourage customers to pay up front for goods and services, you can stop the issue from being such a large one.
For starters, make it easy for customers to pay you straight away. You can set up direct debits or direct checks, for example, or take credit and debit card payments on the spot. Accepting PayPal transactions can also be useful, as many people like to use their PayPal accounts these days.
If you like to provide credit terms to your customers, you should put rules in place around this. For example, consider not providing payment terms to those clients who have not purchased from you upfront a few times in the past, as well as to those who don’t have a proven credit history.
Make sure you check the references of all customers before you allow them to go on seven, 14, 30 or more days credit, as this will help you to see if they have a good history of paying their bills on time or not. In addition, ensure that you make current customers pay for any outstanding invoices they may have before they place new orders with you.
It also tends to help if you offer clients incentives to pay their accounts on time. There are many ways of doing this, and they vary from industry to industry and business to business, but you might like to think about offering a 5 percent discount on bills paid before their due date, or an arrangement such as bonus goods, discounted or faster shipping, or additional services for all on-time payments.
Reduce Inventory Levels and Pre-Sell Goods
Next, remember that keeping too much inventory on hand can also negatively affect your cash flow. If you want to free up some money to pay wages or spend on marketing, administration, sales or other activities, you should pay close attention to your inventory holdings year round.
First, go through your stock to find out what is slow moving, old, or obsolete, and then discount all of these items to get them out the door and free up some cash for new stock that actually does move quickly. You should also analyze your sales history to determine which fast-moving goods or parts you should keep in stock continuously so that you never have to miss out on a sale.
Another good way to free up some cash flow is to pre-sell goods. By doing this you will be less likely to get stuck with items that just aren’t popular, as you give yourself the chance to test out the demand for potential new products before you purchase them. Doing this also helps you to find out from your customers what items they might wish to buy that you’re not currently stocking, in addition to generating some quick cash flow as you accept each pre-order.
Negotiate With Suppliers
Lastly, if you want to get your cash flow under control, it is also very beneficial to speak with all of your suppliers. See if you can negotiate better payment rates and conditions for your regular purchases so that you don’t tie up so much money in this area.
For example, in return for your continued business, you may be able to receive longer payment terms (such as 30-day, 60-day, 90-day or even longer payments). You may also be given discounts on repeat purchases or for buying certain quantities, or receive free, discounted, or faster shipping on all of your orders.
You may also want to see if you can negotiate the ability to return items that you don’t end up selling with a set period of time, or ask for bonus goods or services if you place orders for more than a pre-determined value each trading period (such as per month or quarter).
Latest posts by Sean Bryant (see all)
- How Can Teachers Help Cut Down on School Supply Costs for Students? - February 20, 2017
- What Affects Currency Rates? - February 17, 2017
- 4 Habits of Rock Star Real Estate Agents - February 15, 2017