July 20, 2022Cash Flow
5 Strategies To Accelerate Cash Flow in Your Business
Maintaining a healthy cash flow is one of your top priorities as a small business owner.
Poor sales or a slowdown of customer payments could put your company in financial trouble.
The good news is that there are ways to speed up your cash payments and payment terms to resolve your cash flow concerns.
What Makes Cash Flow Strategies Important?
Many businesses want to forecast how much cash they are likely to bring in over a period of time to ensure they have enough cash on hand to meet their obligations.
With a cash flow projection, you can create a well-informed estimate of your business prospects.
There are different formulas a business can use to create a forecast. Still, no matter which formula you employ, your projection is not a foolproof prediction.
Unexpected events could throw off your projected sales.
A sudden economic downturn may cause your revenue to nosedive, and a series of payment delays from your customers can leave you with low cash on hand.
It is not enough to assume your revenue will continue to rise and your collections will remain stable. The following strategies may help your business realise your cash flow goals.
1. Update Your Projections
First, do not treat your cash flow projection as something that is set in stone.
Some business owners only update their forecasts once a year. However, you can adjust your projection multiple times during the year.
Account for the following factors while recalculating your plan:
- Changes in inventory or input costs
- Expected increases or decreases in sales
- Any new funding for your business
- New financial obligations, such as leases or loans
- Changing economic conditions that could impact your customers’ ability to pay
An accurate cash flow projection can help you determine if you are at risk of potential cash shortfalls so you can take action now to prevent such a scenario.
Investing in accounting software and computer support may help you create new projections when needed.
2. Promptly Send Invoices
Some businesses have poor cash flow because they have not sent invoices to their customers even after rendering services or sending goods.
You could run into this problem if you only bill your customers on a monthly basis. Say you deliver supplies to a buyer in the first week of the month.
You might not receive payment until the start of next month.
Consider changing your invoicing system so you send invoices as soon as you have completed work or delivered your products.
If you do not hesitate to let your customers know it is time to pay, you can eliminate long gaps before receiving payment.
In addition, billing a customer means you can send a reminder later on if your customer has still not paid.
3. Examine Your Inventory for Low Selling Items
Items that sit in your inventory for too long are not helping you generate profits.
Any product that does not move is not helping you recoup the costs of acquiring it in the first place.
You may also lose money servicing non-selling inventory through storage or other maintenance costs.
If you have goods that do not sell, they may cost you in the long run.
A possible solution is to mark down the price for stagnant items to get a sale.
Even if you do not reap a large profit or you even fail to break even on the sale, clearing out the space allows you to stock up on inventory that is more likely to draw customer interest.
You can then choose not to restock the low-selling goods.
4. Speed Up Your Accounts Receivable
You cannot always control when your customers will pay you for your products.
Still, certain techniques may help you motivate your customers to pay as soon as possible. With the help of financial accounting software, your business can take several different actions to help you accelerate customer payments.
Require Payments Before or On Delivery
Sometimes, the answer to speeding up payments is to establish payment thresholds. One way is to require your customers to make a partial payment when they place an order.
Another option is to have customers pay when they receive their order. However you decide to implement payment policies, consider giving them an easy electronic method to pay you.
Minimise Your Slow Paying Customers
Often, the key to improving cash flow is to not deal with customers who drag their feet on payments.
A credit check on a new customer may tell you if they have bad credit and are thus unlikely to deliver payment on time. You can also use accounting software to track the payment history of your current customers.
You may want to implement stricter credit terms for customers with slow pay histories.
Create Incentives for Customers
Your B2B customers likely have cash flow concerns of their own, so consider offering incentives such as an early payment discount to motivate customers to pay their invoices quickly.
You may also offer a payment plan if a customer wants to pay but cannot give you the full amount all at once.
5. Eliminate Unnecessary Expenses
Even after all you have done to increase your sales, your cash flow may still suffer because you are spending money on things you do not need. Look at what your business is paying for, including recurring monthly expenses, and identify areas where you can cut back.
Check around for the best deals on whatever services your business uses.
Look at the insurance policies you have for your business and make sure that other insurance companies are not offering the same coverage for a lower price.
Also, consider using virtual operations if certain activities do not need to be on-site. This can reduce your overhead costs.
Build Your Cash Flow With Confidence
Speeding up your customer payments and eliminating inefficiencies does not have to be a daunting task.
The availability of accounting software helps small businesses conduct credit checks on potential customers, reconcile invoices, remind customers of unpaid amounts, and collect payments with ease.
PencilPay offers support and software that can help small businesses achieve their cash flow goals and build stronger enterprises.