How To Boost Your Cash Flow
Every company is trying to achieve revenue gains, but not all of them are as successful as they want to be. However, it is quite easy to get there: make your receivables a priority and try to postpone your payments as much as you can without getting into trouble with your suppliers.
However, some companies are better at this than others, so here is a list of five ways you can improve your cash flow.
Perform a good forecast
The absolute first thing that you need to do is to have a good understanding on where your cash flow is currently standing and where it could go in the future. For example, small businesses aren’t prepared and financially stable enough to cover all the costs that come with rapid growth. Even if they have a lot of sales, that will lead to more employees and a bigger inventory, which all has to be paid upfront, and there is no sure way of knowing when those investments will start returning and when the company will start having an actual profit.
Too many companies have bankrupted just because they couldn’t manage their money efficiently enough. In most of such instances, it was incredibly easy to predict where and how most of the money would be spent. This forecast could be simple for small companies since they can even map it out on a piece of paper. However, more serious companies tend to have a formal approach to the forecast, usually making a 12-month plan and keeping track of it each week.
[su_quote class=”cust-pagination”] “The most important word in the world of money is cash flow. The second most important word is leverage.” — Robert Kiyosaki [/su_quote]
Evaluate your terms
If you noticed a problem in the cash flow of your company, check the balance between customer and supplier terms. If there is a huge gap between your average payable and average receivable, let’s say a 10-day difference, those ten days are critical for you and your company.
Try to look at the terms you offer your customers and evaluate if they’re profitable for you. Also, analyze how your customers would behave if those terms were changed. When it comes to your suppliers, try to see what they offer to you in comparison to other competitors on the market. You might be missing out on a much better deal than you already have.
One other thing you might want to look into is that a large number of suppliers offer a discount if the bill is paid sooner than later. It may be an inconvenience to the receivable/payable difference, but it would still be a profit if they reduced your bill by 10% or 5% because you settled it earlier.
Enforce payment discipline
If you’re looking to shorten the receivable period, you must have a good system for it. You have to ask yourself how long it takes for a customer to pay their bill, your collection activity, and whether you identify disputes early enough.
Enforcing payment discipline can be difficult, but it’s essential if you want your business to be profitable.
Section your customers, suppliers, and inventory
If you don’t separate your cash flow—what goes in and out—you will find yourself in too big of a mess to even function. You have to look at customers, suppliers, and inventory individually and see where you’re having problems. After looking at your inventory, you might spot a product that is too expensive to produce and isn’t sold enough to cover its basic cost, so it might be best to pull it out of your inventory.
When breaking down the suppliers, you should divide them into the ones you use regularly and the ones from whom you bought something only once. When you have a better grasp of who you are buying from and how often, you will be able to negotiate better terms.
Finally, with customers, when you organize them well enough and take a good look at how they pay, you might realize that even though someone buys from you often, they take too long to pay, creating a huge receivable/payable difference. If this is the case, try developing a strategy to have them pay sooner.
Make the cash flow the entire company’s priority
Make sure that all of your employees understand that they have a target to focus on. Also, motivate them to help them get there. In the end, you are all a team and working towards the same goal. Right?
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