Five tips for improving business cash flow cover article

Every business cash flow needs control and stay healthy. If your customers don’t pay you on time, you cannot pay your suppliers. Thus, you cannot sell and your business comes to a halt.

 

So, to avoid that you must plan ahead. Here is the list of some tips for improving your cash flow with immediate and long lasting benefits.

 

1) Reduce Costs and Improve Margins

2) Pursue Credit Collections

3) Forecast Your Business Cash Flow

4) Negotiate with Suppliers

5) Alternative Financing Options

 

1 – Reduce Costs and Improve Margins

 

Among other things, running a business entails keeping an eye open for the best supply deals around. But after some time better ones come along. Track ongoing offers from old and new suppliers to reduce your costs and fees. Each will try their best to retain or acquire more business from you.

 

If cost-reducing deals are not enough, you could consider raising your prices. If you feel confident and the market conditions allow for the increase, do it. But check your competitors’ prices first. Calculate if your increases still make you one the best sellers around.

 

However, if increasing prices on your core product or service is out of the question, you can still do some cross-selling or up-selling.

 

With cross-selling you can create a bundle adding products from other categories at similar or lower prices. This way you increase sales and average order value. At the same time you reduce your inventory against cash.

 

Slightly different strategy is that with up-selling. Here you sell a more expensive version of the same product. If you pay attention to your customers’ buying behaviour you can run some tests with a sub-group. At check out for example, try to offer a higher specification product or an all-inclusive service and see what happens.

 

2 – Pursue Credit Collections

 

It doesn’t matter whether you are a solopreneur or an incorporated company. In either case you need to ensure your customers pay you on time. Your business cash flow depends from it. Granting credit to customers is part of most business dealings but it is usually badly managed. Instead it should be done with accuracy and attention.

 

Credit Collections for improving business cash flow

 

You must know who you sell to and whether they are able to pay you back and on time. Usually a well defined credit policy gives guidelines. If you don’t have one, at least try to define your credit collection process.

 

Your invoice must go with your goods when they ship or when you render your services. Include your conditions of sale. For example, if you transport goods to destination make sure you specify INCOTERMS, payment terms and method accepted.

 

This makes things clear with the customer from the start. He cannot come back saying he didn’t find your terms.

 

If for example you sell on Net 30 invoice, start sending reminders 15, 7, 3 days before and one on due date. If the customer delays, plan collection calls with the primary goal of getting paid.

 

Prepare all documents and find out who to call. If over the phone, take notes of what you discuss with the customer and make sure you stay professional. If the debtor yells at you, don’t take it personally. Remain calm and assess whether it’s convenient to call another time.

 

3 – Forecast Your Business Cash Flow

 

You cannot only rely on current customer payments. To operate your business you need to have a view on future payments too. By knowing how much cash comes in and how much of it goes out helps you prevent bad surprises.

 

At some point you’ll end up having some customers unable or unwilling to pay. Thus, you must account for them.

 

What if an unexpected missed payment prevents you from paying a major supplier?

 

How do you account for that loss?

 

Debt Collection Worldwide

We want you to know how our service works. Please read our Terms and Conditions first.

 

Firstly, growing a business requires financing and effort from your part. If you want to apply for it and succeed, note that lenders want to see a healthy cash flow.

 

So, how do you make business cash flow healthy? You need to forecast payments from customers. This is what is called accounts receivable forecasting. Besides the impressive term, this simply involves estimating future cash flows.

 

Set the time horizon of your forecast to monthly, quarterly or yearly periods. Shorter the periods, more accurate the forecast. Get all the receipts, invoices, disbursements and see where your cash flow trends to.

 

Know what you’re trying to extract from your forecast. If you expect sales to reach a certain amount, adjust projected variable costs and expenses to it.

 

Also, consider your payment terms and make projections on collections. For example each month within a quarter. Furthermore, a question you may ask yourself is:

 

How much of November invoices will I receive payment for?

 

You cannot expect to receive payment for 100% of the invoices. That’s why you also account for bad debts and disputed orders. Look at past occurrences of non-payment and disputes. Check if they caused you losses. Also, make a similar proportional provision for the period you’re forecasting.

 

4 – Negotiate with Suppliers

 

In all sectors suppliers compete against each other and you can take advantage of this by requesting quotes from each of them. When you contact them, tell them you are asking for quotes. They’ll know you are looking for a good deal and feel pressured to give you their best rates.

 

 

At the same time, you may want to strike a balance with the payment terms. So, while you use the trick of shopping around, pull the price down as much as you can.

 

Moreover, ensure you have cash ready to take advantage of limited offers and leverage your position to be an important customer.

 

Recoupera 5 tips for improving business cash flow

 

Finally, if you’re using factoring with customers’ invoices, use the available cash to strike better terms. By factoring invoices you have fresh money to pay invoices well in advance of their due date. In some cases your supplier will give you a discount for early payment. Also, you may negotiate for more discount.

 

5 – Alternative Financing Options

 

Traditional banks are notoriously slow in the approval process and you may not qualify after all. Financing products are not flexible and rather than adapt to your needs you must adapt to them.

 

That’s why if you are after some form of financing, alternative lenders may be your best choice. Thanks to big data, You get faster and higher approval rates with more flexibility.

 

Also, products are more adaptable and you can get a reply in a day. So, if you need to grow your business while monitoring your cash flow, check:

 

a) Invoice financing

 

You get a partial advanced payment against your invoice face value. Then, when you receive full payment of the invoice, you retain the difference minus a fee. This improves your cash flow from the start and helps you settle your bills early.

 

b) Loans (Short or Long)

 

Some determining factors are your turnover, age of business and credit score. Though online approvals are much faster, interest rates may be higher. Especially, if you are after an unsecured loan.

 

c) Cash Advance

 

Like cash advances over the counter, you can use this form of financing for one-off purchases. Also, if your business doesn’t qualify for other forms of financing or is older than one year.

 

d) Factoring

 

Unlike invoice financing you receive an advance payment by selling your invoices. This way, you reduce the time it takes payment to reach you. Thus, your cash flow gets a boost and can you plan investments.

 

If you need to improve your cash flow health and can’t wait for a month or more, factoring – or accounts receivable financing – is an option to consider.

 

To help you find a reliable factoring company in your country, we have researched and found the 400 strong members list of the FCI, the “Global Representative Body for Factoring and Financing of Open Account Domestic and International Trade Receivables.”

 

Conclusion

 

Managing your business cash flow is one of the most important aspects of your company survival. If you don’t know how it evolves over time, you don’t know where you’re heading. Follow these steps and you’ll see immediate positive results and grow your business.

 

Debt Collection Worldwide

We want you to know how our service works. Please read our Terms and Conditions first.


Recoupera connects you to top debt collectors worldwide at reduced rates. Sign up free and start collecting your outstanding receivables and bad debts now.

This article contains general legal information and material for informational purposes only which are not intended and should not be taken as legal advice. Recoupera is not a collection agency and it is not a law firm or a substitute for an attorney or law firm. All informational material provided may not reflect changes in the law. For legal advice, contact a lawyer.

 

 

 

Leave a Reply

You must be logged in to post a comment.