Keeping your small business cash rich to improve cash flow is one of the most crucial parts of running your company. Here are our ten key tips to help improve your cash flow.
1. Get to grips with cash management
You need to understand where you stand before you can start improving things. Examine accounts payable and receivable, credit conditions and stock. Watch for any imbalance between the cash entering and leaving your business.
2. Invoice customers promptly
Customers will pay quicker if you invoice them as soon as you can. It’s obvious, but it’s still surprising how many businesses get behind on their invoicing. Set aside some time each week to create and send your invoices (which will improve cash flow), and make sure you keep all the information that you need to hand.
3. Make it really simple for people to pay you
If possible, offer a range of payment methods so your customers can choose how they want to pay you. Bank transfers are often the preferred method, but don’t forget cash, cheques, debit and credit card payments and money transfer services. Make sure every invoice includes a clear ‘due by’ date.
4. Keep a very close eye on payments
Being aware of when payments are coming into your business helps you stay on top of and improve cash flow. To make accurate predictions of when payments will arrive, monitor the habits of different customers. This will help you learn which are likely to need prompting for payment.
5. Offer discounts for early payment
People will often pay you sooner if they can pay a bit less. A small discount of – say – five per cent may be enough to have a really positive impact on your cash flow.
6. Formalise and implement a proper credit policy
This will help you make fast, accurate decisions about how much credit to extend to customers, so you can invoice sooner and predict payment dates with more accuracy. If you want to keep some cash in the bank, you may wish to ask some customers (especially new ones) for deposits.
7. Create a collections policy
This ensures you treat all customers fairly and helps you to query overdue invoices sooner. Many companies operate a system of reminders that become gradually more serious and formal as invoices become more and more overdue. And debt collection agencies can help as a last resort.
8. Know when you owe money
A simple way to improve cash flow is to pay all invoices you receive on the day they are due. Early payments can leave you low on cash at important moments. You just have to make sure you keep track of invoices you receive so you don’t miss any payments.
9. Extend your payment times
Have a chat with your suppliers to find out if you can spread payments or extend due dates. This kind of conversation is easiest to have with suppliers you know well, so try to maintain a strong relationship with all your suppliers. The time you invest may pay off when things are tight.
10. Get better at managing your stock
Stock sat on your warehouse shelves is tying up money that could otherwise improve cash flow. Keep track of daily sales and make sure the items you have in stock reflect these patterns. Importantly, figure out which stock generates most revenue and make sure you focus on keeping those items in stock.
Often, good cash flow management comes down to maintaining good records, so you can see historical trends and identify areas for improvement. Good accounting software like QuickBooks can be invaluable. Not only does it speed up the process of invoicing customers and chasing payments, but it also includes useful reports to help you manage and forecast your cash flow and stock levels.