Tips for Improving Your Cash Flow
General Business News
Tips for Improving Your Cash Flow
No business can survive for long without a positive cash flow – that is, more cash flowing in than flowing out. This is probably the top reason a business fails. In times of an economic downturn, you must be aware of your company's current cash situation and take the necessary steps to repair and improve it. Correcting it now will help you weather stormy economic times in the future.
Take Control of Your Receivables
Some of your customers might be making payments late or not at all. The time to go after receivables is before they become late. Prompt invoicing is extremely important in receiving payments in a timely manner. The sooner you invoice a purchase, the sooner you can collect payment. This money will go into your bank and start earning interest to improve your cash flow situation. Consider invoicing your customers more often, such as monthly instead of quarterly. Review your accounts receivable often to make sure customers are not skipping payments or making a habit of paying late. Ask for partial payment up front on large purchases. If customers are late with payments, send out reminder notices quickly. Often, customers just need a reminder that they have forgotten to make this month’s payment. Offering a discount for early payment is also a great incentive to encourage timely payments. Communicate your credit terms up front to avoid future problems.
Create a Budget and Stick To It
Every business owner should create a budget no matter the size of the company. A budget can help you determine if financial goals are being met. By creating one for the whole year, you can spread the cost out over several months. Break down revenue and expenses by each month and determine the amount of cash you will need coming in to keep your bills paid. Review your budget each month to make sure you are meeting your goals. Begin next year's budget before the end of the current year to stay ahead of the game.
Pay Your Bills on Time But Not Early
It takes more than improving sales and receivables to maintain a proper cash flow for your business. You must also make sure you pay your on bills on time. This will put money in your pocket by saving on late fees and interest charges. Consider scheduling payments to creditors electronically to avoid late fees. However, sometimes it is in your best interest not to make payments before they are due. This allows your money to stay in your bank drawing interest until it’s needed. Try negotiating credit terms for purchases. Paying 30 days after receipt would be more advantageous than paying 30 days after shipment of goods. Negotiate with your vendors to get the best deal possible.
Control Your Inventory
Controlling your inventory is key to improving your cash flow situation. Inventory includes both raw goods and finished products. You want to have enough inventory on hand to fulfill orders but not so much that it will sit on your shelf. You should know when you place an order how long it will take to receive the shipment to help you establish reliable lead times for placing orders.
Keep Accurate Records
Accurate records are essential in keeping track of sales and expenses. Checks written should have details regarding what the purchase was for. That information can be important at tax time when your accountant is preparing your tax documents. Receipts are extremely important. Keep them all! They contain details about transactions that a check does not. Your accountant will also need information about transactions such as whether a payment was made to an individual contractor or a corporation.
Consult With Your Accountant
Your accountant has detailed information to help you manage your cash flow situation effectively.
Ask about practices that will help you improve your receivables, collection practices, budgeting, inventory management and record keeping. An accountant also might be able to help you establish credit and collection policies if you do not already have those in place.
These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.