Cash Flow Management Tips for Your Business
A healthy cash flow is an integral component of a thriving business. It is imperative that you plan ahead, keep a close eye on your income and expenses, estimate upcoming financial trends, and be ready for unexpected shortfalls. Here are some tips to help you manage your business cash flow.
Forecasting cash flow for the coming week, month, quarter, and year helps you anticipate and forestall possible difficulties before they happen. Use the payment histories of your clients, the terms you agree on with your vendors, and upcoming expenses for salaries, taxes, improvements, supplies, and other needs to create cash flow projections that help you prepare for the future. Be sure to gather input from your finance department, salespeople, and other employees, and resist the temptation to be overly optimistic.
Often cash flow problems are a result of slow-paying customers. Encourage swifter payments of receivables by providing discounts to clients who promptly settle their bills. Before you offer terms to new customers, run credit checks on them, and if the results don’t satisfy you, insist on cash on delivery. Send out invoices immediately upon completion of work or delivery of goods, and notify clients right away if payments are tardy. You may consider accounts receivable financing or factoring as a way to manage your invoices and increase working capital.
Even if sales are healthy, keep your eye on expenses. Reduce costs by taking advantage of vendor offers of discounts for prompt payments. However, when choosing suppliers, compare not only prices but payment terms. Retain the ability to use your cash as long as you can by paying bills just before they are due. Maintain a good relationship with suppliers so that payment flexibility is an option when you need it.
Prepare for Emergencies
Despite the best projections and management, companies sometimes experience shortfalls. Arrange for credit lines with banks before you need them. If a bank loan is not an option, consider factoring your receivables for a quick boost to your cash flow.
For more advice on managing business cash flow, get in touch with Ironhorse.