How to improve your cash flow as a business
A managed cash flow is essential to the running of any successful business, big or small. It is so important to keep track of both cash ingoings and outgoings. Businesses that are able to effectively manage their cash flow from the onset tend to be more profitable in the long run.
It is important to note that cash flow and profits are two different things. A profitable business does not necessarily mean that it has a positive cash flow.
This article will outline five ways that can be adopted to improve a business’ cash flow.
1. Be organised using software
Invoicing software is crucial, as well as the simplest method, for keeping track of a business’ cash flow. The software is able to automate several business processes, as well as provide an overall view of a business’ cash flow at any given time. The software can allow businesses to both organise and register all sales.
2. Offer a number of payment options
You will be paid faster by customers when there are a number of payment methods offered, as this typically means they have the option to opt for the most applicably convenient. Usually, customers will opt to make their payments digitally or online.
As such, by accepting debit cards, ApplePay, credit cards and PayPal for example provides customers with several options to make payment, often meaning that they are likely to pay faster.
3. Send out invoices promptly
Typically, the faster you send out an invoice, the sooner you should expect to receive payment. It is important to keep track of all invoice send-outs if this is not the case, as you will be able to send out reminders to late payment-makers.
Invoices should always be clear and specific in terms of details, especially the due date cut-off point for payment.
Where possible, try to get cash advances from clients, whether it is the form of a deposit or getting 50% of the payment upfront for working capital. This is common in web development, marketing, catering, prototyping, retail and more.
4. Try to reduce operating costs
It is important to allocate time regularly to review business expenses. Regular reviews can allow a business to reduce costs, as what they might spend a lot on in one quarter may not actually be necessary for the next.
Money that does not benefit employees or the growth of the business should not be deemed as necessary and stopped in this instance. It is important to make sure that any cost cuts are not made in areas that could be detrimental to business growth in the long run however.
5. Provide employees with cash flow training
Educating employees on the importance of a positive cash flow value is important. This is because their understanding can impact any contract or deal negotiations that they might make. For instance, it is important to be transparent with relevant employees in instances of large orders of long-term contracts. This is because it may benefit the business to make regular monthly payments for the goods or services, as opposed to one large payment.
It will also help in scenarios where things may not always go to plan. For example, there are long delays on shipments, changes to volumes ordered of a good or when a customer decides to cut ties with the business. This is because it means an employee can flag the short-term impact something like this may have on the business in the short-term.
To get started, the Gov offers a cash flow forecast template for free, which you can use to keep an eye on incomings and outgoings.