Tips to improve your cash flow?
The start of the new year provides small businesses with the perfect opportunity to improve their credit management and cash flow conversion cycle. Here are some tips for improving your credit management and cash flow:
Chase your cash
No one likes asking for money, but being proactive to shorten your receivables will boost your cash flow. Set time to manage your cash flow and your receivables on a regular basis.
TIP: Send invoices immediately after the delivery of goods/services, or change your payment terms from 60 days to 30 days.
Have a cash flow budget… and monitor it!!!
Many businesses don’t have projections and if they do they tend to do them for the bank, yet they don’t monitor them for themselves.
TIP: Put a reminder in your diary to monitor this monthly.
Invest in a proactive accountant
The services of a good accountant can serve as an investment rather than an expense. A proactive accountant will help you review cash flow projections and results, provide insights into areas that you may have overlooked, and help you anticipate and plan for cash flow problems.
Use a credit card
Consider using a credit card to pay for goods and services. This can provide you with up to 55 days after your statement to pay for supplies. If managed correctly, this can also help reduce your interest and financing costs.
Using credit cards to pay your bills is widely accepted although it’s surprising how many businesses still don’t offer card payments. Anything you can do to speed up payment from customers helps to improve your cash flow. This is not only a positive result for clients but also saves debt collection and follow up phone calls, which can actually be more costly than the small discount.
TIP: Consider implementing card payment before they walk out the door, or offer incentives or a small discount.
Rightsize your finance/debt structure
Having the right backing of finance can make a big difference to any business. For example, match your finance with the period it relates to - ie. short term finance for short term problems and long term finance for assets that you own for a long time. A line of credit in place to cover short term needs and emergencies is a much more efficient way to manage your cash flow than trying to get a loan in a hurry. Rates are competitive, you can draw from your line of credit when you need it, and you pay interest only on the amount borrowed.
TIP: Consider taking a longer term loan to purchase a piece of equipment, car or computer system instead of buying it outright with cash/savings. You'll free up some cash that can be used in the business when cash flow is tight.
Invest in your business
Look after your business and take steps to build your business. Training staff or boosting your marketing can help improve business performance and future cash flow.
Don’t steal profits from your business
You deserve to get rewarded for the work you do so pay yourself a fixed wage on a regular basis. Many businesses go broke because of excessive owner related drawings. Most larger listed businesses pay a dividend twice a year. They look at the cash flow and may pay half of the cash profit in dividends, whilst retaining half for investment purposes.
TIP: Always remember to factor the tax bill, GST, or outstanding debts of the business before taking the cash. Allow enough in case your business goes quiet for a while.