Cash Flow Management Tips to Foster a Growing Business
The age-old problem of having to pay employees and suppliers immediately while waiting for incoming revenue, is an issue that has vexed businesses since the beginning of commerce. However, there are ways to manage cash flow problems, if you expect them and prepare for them.
Handling receivables properly
In a perfect world, you would get paid for sales at the precise moment of their occurrence, but the reality is that you’re usually forced to wait some period of time for payments to be made. This being the case, you need to do your best to shorten that window, so that payments can come in quicker, and your businesses is less subject to cash flow shortages. To do this, you can offer discounts in exchange for fast payment, do credit checks on non-cash customers, issue invoices immediately, and follow up quickly on slow-paying customers.
Management of payables
It’s always a good idea to keep an eye monthly expenses, especially when you notice that they are growing faster than incoming revenue. When you see that these two are becoming out of whack in comparison with each other, it might be time to take some cost-cutting steps. For instance, you can stretch out your payment terms with creditors, you can pay vendors electronically on the last possible due date, you can take advantage of vendor discounts when it’s advantageous, and you can accept flexible terms offered by your suppliers.
Covering cash flow gaps
It’s pretty much inevitable that at some point your business will experience cash flow gaps, and hat you won’t be able to pay bills as a result. If you understand this at the outset, you can plan for it and have a strategy in place for when it occurs. For instance, one way to manage shortfalls is to have a line of credit which you can dip into when necessary.
You can also make use of several alternative financing products which can get you cash immediately. It might also be possible for you to make arrangements with your suppliers to have terms extended while you are in a shortage situation. Very often just having a frank conversation with suppliers can lead to an understanding and an agreement on an extension – after all, they’re businessmen who probably have cash flow gaps of their own.