Managing your business cash flow efficiently helps to facilitate growth and provides greater flexibility with your decision-making. Having healthy cash flow allows your small business to operate strategically, ensuring you are in a position to take advantage of opportunities that present themselves.
Speed Up Payments From Customers
Having slow-paying customers is inevitable for most businesses. Introduce incentives to encourage your customers to pay early to help offset late payments. You could offer scaling discounts for clients who pay early. For example, if you own a small accounting business, offer a 10% discount for clients who settle their account 10 days early, an 8% discount for clients who settle eight days early and so forth. If you sell big ticket items, consider requesting customers to pay a deposit. Use accounting software to help your business track slow-paying customers, and send your customers automated reminder emails before payment is due. Your business could initiate a cash on delivery policy for customers who frequently make late payments.
Manage Expenses Optimally
Managing your business expenses prudently can free up funds, helping to improve cash flow. Many expenses are unavoidable, but you have the ability to control them. Utilize creditors’ payment terms. If a payment is due in 10 days, pay toward the end of the term so your cash can be used for other purposes in the interim. This can be organized by setting up internet banking to make automatic payments for reoccurring expenses the day they are due. Look for suppliers with flexible payment terms that fit your small business. For example, if you are a product seller, you may require leeway with a supplier’s payment due dates at certain times of the year to accommodate seasonal demand.
Keep Inventory Low and Frequently Turn It Over
Keep minimum inventory and ensure it is frequently turned over to help your business maintain steady cash flow. Purchase inventory regularly to avoid cash being tied up in unsold stock. For example, if your small business purchases $200,000 worth of inventory a year, make 10 purchases of $20,000 as opposed to one purchase of $200,000. Product sellers could also explore the possibility of using drop shipping to reduce the amount of inventory they have to hold. Review your inventory every quarter; have a strategy to clear stock that has not turned over. For example, if you own an online store, have a once-a-quarter sale day where you offer excess stock at a 20% discount.
It may be one of the oldest forms of trade, however, small businesses’ cash flow can benefit from bartering. Negotiate deals to trade products and services with your suppliers who are also customers. For instance, if you own a waste removal business that targets the technology industry, consider organizing an arrangement to trade waste management services for web hosting services. This reduces your operating costs and frees up cash for other purposes. Search for business-to-business bartering services in your local community.