If you run a business and your sales appear to be doing well with your profits are increasing year-on-year, then you are certainly heading int he right direction. However, don’t get too comfortable. Even companies that are profitable and growing at a rapid rate can end up dealing with cash flow problems if their finances, operations and investing activities are inefficient. For example, if your payables are due before your receivables come in, you will likely face cash flow problems. In turn, this could lead to an inability to pay bills and debts on time, which could lead to bigger problems, like being left unable to pay employees on the expected date, or facing questions when applying for future business credit. If you want to improve cash flow in your business, consider implementing some of the following strategies:
Lease Rather Than Buy:
Leasing supplies, equipment, and property often end up being more expensive in the long-term compared to buying, so doing so might seem counterintuitive when it comes to keeping your bottom line low. However, unless your company has a lot of cash lying around, it’s important to maintain a cash stream for day-to-day expenses and operations. Leasing allows you to pay in small increments, which in turn, is better for cash flow. Also, lease payments are classed as a business expense which can be written off on your taxes.
Incentivize Clients to Pay Early:
Everyone loves an incentive, especially when it involves saving money. Offering your clients a discount to pay their invoices ahead of time creates a win-win situation for everybody involved. Your clients will be more motivated to make payments quickly so that they can take advantage of the financial reward, and getting the cash in early will help your cash flow and ensure that you have enough funds coming in ahead of the time expenses are due to be paid.
Conduct Credit Checks:
If a customer doesn’t want to pay you in cash and instead opts to pay over installments, then be sure to conduct a credit check before you sign them up. If a client has poor credit, then the risk of them not paying on time is going to be larger. Even if you really want to make a sale, late payments can really hurt your business’ cash flow. If you do opt for a sale despite a customer having a poor credit rating, then you should charge a higher interest rate. Remember that you can always reevaluate this once a customer has proven their ability to make timely payments in the future.
Consider Short-Term Loans:
Rather than landing your business in a sticky situation if your inflow is not coming in soon enough to cover the expenses that are becoming due, you should consider taking out a short term loan that can be repaid once your clients have paid their invoices and any other receivables have come in. A short term loan from a lender who will offer flexible repayment options is an ideal option for making sure that you are able to pay business expenses on time if you run into cash flow issues, but try not to rely on this on a regular basis if possible.
Use Electronic Payments:
Finally, make it as easy as possible for your clients and customers to pay what they owe by using electronic payments. Sending out invoices electronically with an option for customers to pay online straight away using a debit or credit card or a payment wallet will simplify the process since the client is able to easily pay immediately regardless of the device they are on; no need to write a check and pay a visit to the post office or bank.
Keeping a positive cash flow is important to business success, so keep these tips in mind to make sure your company avoids cash flow issues.