How to Improve Your Cash Flow
Slow paying customers, seasonal revenue variations, an unexpected downturn in sales, higher expenses -- any number of business conditions can contribute to a cash flow crunch. If you own a small business, you may find the suggestions that follow helpful in minimizing cash flow problems.
Billing and collections. Your employees need to work with clear guidelines. If you don’t have a standardized process for billing and collections, make it a priority to develop one. Consider sending invoices electronically instead of by mail. And encourage customers to pay via electronic funds transfer rather than by check. If you don’t offer a discount for timely payment, consider adding one to your payment terms.
Expense management. Know when bills are due. As often as possible, pay suppliers within the period that allows you to take advantage of any prompt-payment incentives. Remember that foregoing a discount in order to pay later is essentially financing your purchase.
Take another look at your costs for ongoing goods and services, including telecommunications, shipping and delivery, utilities, etc. If you or your employees travel frequently for in-person meetings, consider holding more web conferences to reduce costs.
Inventory. Focus on inventory management, if applicable, to avoid tying up cash unnecessarily. Determine the minimum quantities you need to keep on hand to promptly serve customers. Systematically track inventory levels to avoid overbuying.
Debt management. Consider how you use credit. Before you commit to financing, compare terms from more than one lender and keep the amount to a manageable level. For flexibility, consider establishing a line of credit if you do not already have one. You will be charged interest only on the amount drawn from the credit line.
Control taxes. Make sure you are taking advantage of available tax breaks, such as the Section 179 deduction for equipment purchases, to limit taxes.
Develop a cash flow budget. Projecting monthly or weekly cash inflows and outflows gives you a critical snapshot of your business’s cash position and shows whether you’ll have enough cash on hand to meet your company’s needs.
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