Tips for keeping your business flush with cash

US-PDGov

By Kelli Cooper

Unless you operate a business where you receive payment immediately upon your customer or client making a purchase, finding ways to maintain a steady infusion of cash is probably a top priority for you; and, if you are like many small business owners, you may be struggling with keeping the flow as steady as you would like it to be. The money you earn from offering your goods and services will really serve no useful purpose until you actually receive it, so here are some tips to make sure you get it in a timely fashion.

 

Evaluate terms with customers and vendors

If cash flow is a problem, it may be time to take a good hard look at the terms you have set up with both customers and any vendors of your own. If your time frame for receivables is 60 days, you might benefit from changing it to 30; you might also consider making changes such as requesting down payments or requiring payment immediately upon completion of a service or delivery of a product. If your payments to vendors and payments being received from clients is not ideally aligned, you might consider asking to change payment dates to vendors to a time when you will be sure to have money from your clients.

 

Set clear terms with customers

Clarity is a key first step in executing any successful endeavor—to get something accomplished, you need to be very clear on exactly what it is you want to get done. Make sure you have very clear terms with your customers regarding payment—when it is expected and how you want it done. It should always take some written form, whether you clearly outline it in a contract with new clients or it is part of your website. Clearly outline information regarding interest for late fees and any collection costs that will be passed onto the client in the event you turn to an outside agency to pursue payment.

 

Consider accounts receivable financing

If your payment terms are 30 days out or more and you are really hurting for cash now, you might consider using the services of a receivables financing company; this involves selling your receivables to a company now for immediate cash. Of course, on top of paying the money back to the company when you get the payment from the client, you will also have to pay their fee for giving you the money. When considering this option, you have to carefully weigh whether getting that money immediately outweighs the extra money you need to lay out for the service.

 

Carefully evaluate customers, suppliers and inventory

To get the best idea of how to improve cash flow, it is important to separate and evaluate the three major areas of customers, suppliers and inventory carefully. When it comes to inventory,  carefully evaluate how different items are selling and where your money is going. You might find you have a lot of money tied up in products that sell infrequently. As for suppliers,  look to reach out to the ones you work with regularly to try and work out better terms and discounts—you may not have much leverage with one-off buys, but it does not hurt to ask when looking to make a purchase. Keep a close eye on customers and really get on those slow-payers. There may be some easily solved problem that explains their constantly late payments, like frequent invoicing errors.

About the author: Kelli Cooper is a freelance writer who enjoy sharing tips on how businesses can improve their financial health.