10 Steps to Improve Your Cash Flow!
One of the most critical elements for any business is to constantly manage is cash flow. Running out of money at the wrong moment is stressful. It’s especially hard when the shortfall is momentary and your customers tell you the check you need is “in the mail.”
This is the fickle nature of cash flow. It can stop a new project, force tough decisions, and even cause a business to fail, even when the money is almost in your grasp. To find cash flow stability you need a comprehensive approach using several techniques.
- The first rule in changing in your business, is measure the element you must change. Create a good cash flow forecast. A cash flow forecast shows all your expected income and outgoing cash week by week for at least 8 weeks. Update that 8-week cash flow forecast every week, to show you if a storm is coming, and how big that storm might be. With the up to date 8 week forecast, you will know about any shortfall as early as possible and be able to plan for it.
- Have your payment terms match your outgoing cash needs. If you must pay your invoices in 30 days, have your payment terms to collect from your customers within 30 days.
- Require deposits or advances on large orders.
- Monitor your accounts receivable payments until they are paid. Call to make sure the service and invoice were satisfactory and ask about the payment time. If payment is not in your hand within 30 days, call and ask about the anticipated payment time. Add the penalties and fees on their next statement. (Don’t forget to make the payment date correction on your cash flow forecast.) *
- Check out new customers to make sure they have a good payment history. Ask around, check credit reports. No need to work for someone with a track record of paying late, who argues to pay less than the invoice, or not pay at all. *
- Factor your receivables. If your time doesn’t allow you tackle items 2-5, a factoring company has the staff to manage those processes for you. A factoring company will also pay you 80-95% of your invoice value within 24 hours. *
- Get an interest earning checking account. Even if the big bucks are only in there for a few days, it’s better to make a little bit of interest on that money. The awareness of earning interest on every bit of money you earn, helps you incorporate good money habits. Make the money work for you.
- Manage your Payables to meet the terms and avoid late fees, interest. Take advantage of any early payment discounts. Use that Cash Flow forecaster to hit those early payment discounts. If you’re going to be close to the due date, use a Bank Wire transfer to hit the deadline and avoid late fees.
- Negotiate discounts. You are a business. Make sure you’re getting the business rate on everything you’re purchasing. Ask for discounts on anything you’re buying in bulk, or frequently. Ask if they have a cash discount. Local suppliers often have great Business to Business programs that they don’t advertise, so ask.
- If you’re experiencing a temporary shortfall, call your suppliers and ask if they can extend the terms this one time, without penalty.
So stop feeling guilty about a shortfall and start working the 10 steps every week. Just like winter weather, cash shortfall’s are going to happen, being ready for it will make all the difference.
*Services available at Steelhead Finance