If your business is growing at a rapid pace and your profits are increasing year after year, you’re definitely on the right track. But don’t be fooled. Even growing and profitable companies can face cash flow problems if they don’t manage their finances, operations, and investments effectively.
For example, if your payables are due before your receivables are due, you’ll have a cash flow problem. When this happens, you won’t be able to pay your bills on time. This can lead to bigger problems, such as difficulty paying your employees on time and a loss of creditworthiness.
So if you want to improve your cash flow, you should consider implementing some of the following methods!
10 Ways to Improve Cash Flow
1. Lease, Don’t Buy
Leasing equipment, machinery, and real estate often costs more than buying them. So to someone who only looks at the bottom line, this may seem counterintuitive.
But if your company is not making enough cash, you need to maintain cash flow to run your business day-to-day.
Leasing improves your cash flow by making smaller monthly payments. As an added bonus, lease payments are a business expense, so you can write them off on your taxes.
2. Offer a discount for early payment
Everyone loves an incentive. So offer your customers a discount if they pay their bills early. This creates a win/win situation for both of you.
It goes without saying that getting cash early improves your cash flow. The sooner you get your money in, the less you have to worry about!
3. Do a Buyer Credit Check
If a customer doesn’t want to pay you in cash right away, you need to do a credit check. Especially before you sign them up.
If a buyer’s credit history is poor, you can safely assume that they won’t be able to pay you on time.
No matter how much you want to close the deal, late payments will hurt your business’ cash flow.
So if you decide to go ahead with the deal even if you have a questionable credit history, make sure you set a high interest rate.
4. Form a Buying Cooperative
With the idea that “strength is in numbers,” find other companies that are like-minded and pool their money.
By doing this, you will be able to negotiate lower prices with suppliers. This is because suppliers usually give big discounts to large companies that buy in bulk.
5. Review your inventory
Take a look at your inventory. Like other items, list items that are sitting idle and not being sold. These items are tying up a lot of your cash and can affect your cash flow.
Don’t buy more items that aren’t selling. Get rid of them, even if they’re on sale at a discount. It’s hard to let go of items that you really love.
You might think that they’ll become popular someday, but that’s rarely the case. Don’t judge by emotion, but by the facts!
6. Send Invoices Promptly
If you send invoices promptly, you will see your receivables come in sooner. So, it’s important to understand the basics of how to write a good invoice. Your invoices should be easy to read, and the terms of payment should be clear.
Include the due date in a few places (in block letters, if possible), including at the top and bottom of the invoice. Include clear instructions on the payment methods you accept. Also, if there are any late payment penalties, be sure to include that information.
7. Use electronic payments
If you pay electronically, you can pay your bill the morning of the bill. Buying time in advance can improve your cash flow.
You can also use a business credit card. Some cards offer a grace period, which can help you increase your cash flow. You may even get cash back.
But be careful not to get too much debt. Carrying too much debt can create another type of cash flow problem.
8. Pay Suppliers Less
If you are close to your suppliers and maintain regular contact, you will have a better chance of getting better terms from them.
If they agree to a discount, offer to pay you sooner. Mastering the art of negotiation is an essential part of doing business and can help you get better deals from your suppliers.
9. Use High-Interest Savings Accounts
Use high-interest savings accounts to increase your cash position while providing liquidity.
The best high-interest savings accounts offer rates that are significantly higher than the national average. This means you can earn more on the money you save.
10. Raise your prices
Raising your prices is a scary thought for many business owners. They worry that sales will drop.
But it’s a good idea to experiment with prices to find the best price. “How much are customers willing to pay?”
You never know until you take a risk. So take a chance. Even a small price increase can significantly improve your cash flow.
What is Cash Flow?
Cash flow is the net amount of cash coming into and going out of a company. The success of a business depends on its ability to generate positive cash flow through its normal operations.
Cash coming into a company is called inflows, and includes revenues from the sale of goods or services and profits from investments. Cash going out of a company is called outflows, and includes expenses and debt payments.
What are the 3 types of cash flow?
There are three main categories of cash flow. All three are reported in the “Statement of Cash Flows” section of a company’s financial statements.
- Cash Flow from Operating Activities: This is the cash generated by the company’s primary operations. This shows whether a company can continue as a going concern.
- Cash Flow from Financing Activities: This is the cash flow generated by borrowing money, paying down debt, and issuing or repurchasing stock.
- Cash Flow from Investing Activities: This is the cash flow generated by buying and selling assets.
Also Read: What Is the Operating Cash Flow Ratio?
Why is improving cash flow important?
Improving your business’s cash flow is one of the most important things you can do. This is because it ensures that you have enough cash on hand to meet your financial obligations, such as paying bills, employees, and suppliers.
Businesses with strong cash flow can pay off debt, invest in new opportunities, expand, and handle unexpected expenses more easily.
However, businesses with weak cash flow will struggle with all of these issues. This can eventually lead to the business going out of business.
The Bottom Line
A healthy cash flow is the result of efficient and smooth operations. Implementing some or all of the 10 things listed above will help improve your business’s cash flow.
You also need to make sure you are making the right decisions about marketing, customer service, product or service development, and finding new customers.
That’s why it’s so important to regularly review and update your business plan to anticipate trends and challenges that could impact your profitability!
