The 8 Tips you need to know to improve your Cash Flow
Do you find yourself trying to figure out how you are going to pay your bills, or perhaps payroll? If so, stick around to find out how you can improve your cash flow and avoid this headache.
In times of COVID, even the most profitable companies have encountered Cash Flow problems. This starts when you have to pay debts as they become due but you don't have the money available to do so. You need to analyze your inflow and outflow and make the necessary adjustments. Most of the time this might be just a temporary business problem, but if not solve on time it can become really difficult to get out.
You can improve cash flow by implementing all or some of the following strategies:
Invoice Processing
Getting your invoices to your clients as soon as possible will help you increase your cash flow. Make sure the invoice is clear and understandable to avoid delays due to confusion and/or errors. Make sure the due date is included in the upper section of the invoice. Choose a consistent time when invoices are due and stick to it.
Accounts Receivable
In order to improve your cash inflow, you might consider offering a discount for early payments. This will benefit both you and your client who now has the option of paying less. In your invoices, also include all payment options available including an online option, it has been proved it helps with a faster turnaround on your A/R. Make it easy for your clients to pay you!
If you do offer an online option for payments, do some research to analyze which merchant company works best for you and your business, taking into consideration the fee they charge, the time it takes for the deposit to hit your bank account, and their processes for charge backs and refunds.
Late Payment Penalty
Implementing late fees helps increase your chances of getting your money on time. Be clear with your customers on when and how much a late fee will be charged to their bill. We recommend adding it to your invoice template. To know how much your fee should be, do some research on what is considered a normal Late fee penalty within your industry.
Accounts Payable
Renegotiate with your vendors the terms on your bills to get the maximum days possible to pay your debts. You should also be strategic about when you pay your vendors. If they offer early payment discounts take advantage of it, if not, pay the bills on its due date. If you are going through a shortage of cash, you can use your credit card to enjoy some extra days of grace, however, do not forget about the interest you may be incurring if you don’t pay the credit card on time. Lines of credit offer better interest rates than credit cards!
Reduce business expenses
Cut or suspense some business expenses and stick with what is necessary to run the business. Non-essential expenses can be cut while you recover from your cash flow issues. Some vendors will offer cheaper alternatives to avoid losing a client, maybe this is a good opportunity to reduce operating expenses and get better pricing or cheaper options.
Increase your prices
This can be the scariest step for you as a business owner because you don’t want to lose your current customers nor lower your sales. But the reality is that no one opens a business to have losses. Review your operational cost and ask yourself, Are my prices covering the costs plus giving me the profits I need? Will that profit helps me achieve my business goals?. Of course you need to do some market analysis to learn the prices in your industry but most of the times you are gaining clients because your prices are low. Adjust your prices and charge what you are worth base on the quality of your services/products!
Take a Business Loan
If you are paying loans, credit cards, and interest on bills you need to consider getting a new loan to pay off all your debt and have some extra money to invest in growing your business. Nowadays, businesses have the opportunity to obtain business loans with a low-interest rate.
It is important that you have a plan to pay it off. And that plan needs to be in writing! You need to see it, see the calculations, and be able to adjust it when things don’t go the way you have planned.
Financial Strategy
Get in touch with a Financial Advisor, they can help you develop a Financial Strategy to achieve your goals. Cash Flow Forecasting is especially useful in this case, this is going to reflect how much money your business expects to receive in, and payout, over a given period of time.
We hope you can get out of the Cash Flow RollerCoaster fast. If after applying some of these strategies you still think you need further assistance, don’t hesitate to contact us. Schedule a Free Discovery Call to know how we can help you or email us at [email protected]