A common challenge for many small businesses is the feast-or-famine nature of managing cash flow. Poor cash flow can mean certain doom for an otherwise healthy business.
Beware, a cash flow crunch can sneak up on you if you aren’t prepared. It can affect a company experiencing a slowdown or one that is rapidly expanding. This is why optimizing your cash flow management process is essential if you are trying to mitigate common cash flow problems.
Creating a positive net cash flow for your business can be achieved by implementing a few simple changes to your cash flow management strategies. If you would like to know how to increase cash flow in your business, here’s a list of a few simple tips to improve your cash flow position as a small business:
Accept Responsibility For Minding Your Company’s Cash Flow – Even if you hire an accountant to help keep the books, don’t expect them to tell you everything you need to know. Stay informed and educate yourself on how best to manage your business finances.
Bill Promptly and Accurately – Billing right away for your products or services will only help to facilitate prompt payment. Also, avoiding billing errors and mistakes will not only increase payment turnaround, and therefore maximize your cash flow, but it will also help to build trust with your customer. There’s nothing like regular billing errors to strain a business relationship.
Actively Monitor Your Cash Flow – You should always know the financial status of your business (monthly sales, expenses for the month, how quickly clients are paying, etc.).
Avoid Slow Pay/No Pay Customers – Don’t be shy about checking credit references or even paying for a credit check if the client is significant enough. If your business is currently struggling with slow-paying customers or frequent late payments, there are strategies to get your clients to pay faster that may be worth investigating.
Regularly Analyze Your Finances and Adjust Your Strategy Accordingly – Actively monitoring your business cash flow helps catch small problems before they become unmanageable. If something is off, start asking questions until you get answers. The answers will help to define your business strategy.
Organize Backup Financing or Cash Reserves – Invoice Factoring, lines of credit, or even equity financing can help get you through a cash flow crunch. Putting a small business emergency fund in place is also a key aspect of ensuring your company is protected no matter what problems are thrown your way.
Lease Instead of Purchase – Although leasing costs more in the long run, buying on an installment basis means less cash upfront and can be a boon to your cash flow.
Control Spending – Look over your expenses and see where you can trim the fat without causing the business to suffer. Add employees slowly and cautiously. Watch inventory and be careful not to overstock (this can easily bleed your company of cash).
Accelerate Receivables – Don’t be shy about asking customers for advance payments and reward early payers with a discount. Just putting out friendly reminder calls (“Did you get my bill, when can I expect payment?”) can significantly augment your cash flow.
Using Invoice Factoring for Cash Flow Improvement
Invoice factoring is a convenient cash flow solution that gives business owners access to immediate working capital, and unlike a traditional loan, you do not acquire debt. Small business factoring is particularly beneficial for companies navigating tough economic conditions, as it provides quick funding by turning unpaid invoices into cash. This approach helps improve cash flow, allowing businesses to cover operational costs, manage payroll, and invest in growth opportunities without incurring additional debt. Factoring is a financial transaction whereby you “sell” your unpaid invoices to a third party for a percentage of their value upfront. To find out more about how a factoring company can help you with saving time, growing your business, and improving your cash flow and accounts receivables processes, contact Charter Capital today.
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