Managing cash flow isn’t on any entrepreneur’s mind when starting a business. However, it is a crucial part of running a business successfully, because it isn’t possible for a business to sustain itself without adequate cash.
This is true even for businesses that are growing exponentially and performing well. So as a small business owner, if your goods are selling like hot cakes and you’re making profits, don’t let your guard down already.
Don’t let this worry you either; you just need to know how to keep the cash flowing in your business! If you’re ready to know how, read on to know 5 exceptional ways to maintain cash flow in your small business.
Keep Costs Low
Sustaining a balance between incomings and outgoings is all you need to do to keep the cash flow positive. A good idea is to cut down on operational costs so that you can have more cash in hand. Here are some tips you can use:
- Downsize your team and outsource peripheral tasks to reduce overhead costs and utility bills. Utility costs can also be brought down by reducing overall working hours.
- Lease employees or hire freelancers so you only pay them when you need their services. A good idea is to hire part-time support staff as they won’t need extra benefits. Moreover, laying them off will be a lot easier than with loyal full-time employees.
- Refrain from buying assets that you don’t need. If you need to have big machinery or equipment, lease them instead of buying to eliminate upfront and maintenance costs.
- Pay bills on time to avoid penalties. All the same, wait till the due date to pay bills to keep the cash flowing instead of paying in advance. If you need more time to pay, call your suppliers and request them to extend the due date.
- Review all the publications you subscribe to; if you find any that aren’t helping your business grow, avoid renewing.
- Seminars can be expensive. To save money, don’t have all team members attend; send one or two senior employees and have them pass on the knowledge to colleagues and subordinates.
- When buying office supplies, shop for the best prices and always buy in bulk. Buy generic instead of brand-names when it comes to items like printer cartridges.
- Use fax instead of mail and reduce phone lines. Remember to fax and make long distance calls during off peak hours to save money.
Ask for Payment Upfront
Asking customers to part pay for your services or products when they place an order is a good way to avoid delays in payment. You can also consider asking customers for a down payment on projects.
Alternatively, alter your payment terms to ‘payment in full upon completion’ or ask for cash on delivery. This way, you’ll get paid right after a project completes or the moment your customers receive products.
Make sure you aren’t encouraging your customers to delay payment by sending out invoices late; be proactive and have invoices sent well in advance. Have a system in place to generate and send invoices, track outstanding invoices, credit guidelines, and follow-up.
Check invoices to reduce errors and consequently, disputes over amount owed. If a customer claims he has been wrongly charged, ask him to pay the undisputed part right away and look into the issue later.
Offer Multiple Payment Options
If you offer just a single payment option to customers, a lot of them might be inconvenienced, which will only delay payment. So don’t give your customers a chance to make excuses; instead, give them a range of payment options to choose from.
That being said, prefer electronic payment modes so that you can press for payment at any time, and avoid accepting checks as they can take time to clear. Also, you’ll never be able to tell if a customer is telling the truth when he says that the check is in the mail!
Hire Professionals to Deal with Unpaid Debt
Getting customers to pay can eat up your time as well as energy. Instead of wasting your resources, go for invoice factoring and manage your cash flow easily. Just turn to a reputable business financing firm, sell your invoices to them for cash, and let them deal with extracting payment from your customers!
For debt that is over 90 days old, approach debt collection agencies for a lump sum. Also consider writing aged debts off as bad debts and claiming Bad Debt Relief on them. Doing so will make you eligible to reclaim value added tax that you paid on those bills.
If operations, finance, and investing activities aren’t running smoothly, even the most profitable businesses can be hit with cash flow troubles. While it may seem difficult to improve cash flow in a small business, it isn’t impossible and you only need to do a few things right to get back on track.
With the tips given here, you now know how to keep the cash flow positive in your small business. So get started on implementing these tips as soon as you can!