Getting a better handle on your cash flow is imperative for small and medium sized businesses as cash is the lifeblood of a business. To do so, you need to make sure your business has a PLAN in place to get you there.Image may be NSFW.
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Plan Ahead
Easier said than done, but in order to increase your company’s cash flow, you need to plan ahead for it. Cash flow forecasting helps you establish target goals for revenue, create better budgets, and prepare your company for next steps when the cash starts flowing in. A good place to begin cash flow forecasting is to forecast six weeks out. By using already existing data in your books, you can forecast out how you expect your cash flow to perform over the next month and a half. Once you get a hang of forecasting weeks out at a time, you can use year over year data including budgets versus actuals to forecast 12 months at a time.
Many businesses use QuickBooks® for managing their finances, which makes running a cash flow forecast a simple task with its built-in Cash Flow Forecast Report tool. Forecasting provides valuable information about the current and future financial health of your business. You don’t want to experience a sudden influx in business and not be prepared. Planning out for excess cash flow prepares your staff, systems, and business processes for growth in the company.
Look at and Review Outstanding Invoices
Your outstanding invoices are holding up cash that is owed to your company. Reviewing your outstanding invoices and implementing collections best practices for getting your clients to pay helps to balance your books and bring in the cash you deserve for your services and/or products. Additionally, if a client pays late, they may be subject to late fees as stated in your service agreement. Making sure you collect your late fees brings in bonus cash to help make up for the delay in receiving payment.
Adjust Accounts Receivable Time
Improve your cash flow by reducing the amount of time it takes to get paid. This can be achieved through multiple channels.
Accepting credit card and electronic payments:
If your business relies heavily on cash or check payments, you are impacting cash flow by extending your accounts receivable process. It takes more time and more effort on your part to get paid if your customer/clients are paying by cash or check. Waiting on the mail, carving time out of your day to get to the bank, and waiting for the deposit to clear are all eliminated when your business institutes credit card and electronic payments methods. This process improvement will make it easier for your customers to pay while reducing the amount of time it takes to get cash in your bank.
Establishing Pay Ahead Discounts
For service-based businesses and B2B companies, cash flow can be improved by accepting large payments up front. Some businesses offer discounts off of their standard service rates when customers pay for a full year’s subscription at once. Others offer incentives such as pay for 3 months – get the 4th free or reduced. This method allows you to get the cash up front, which not only helps with cash flow forecasting, but it can also reduce or eliminate steps in your monthly accounts receivable process, saving you additional time and resources.
Negotiate Terms with Vendors
Chances are, your vendors are just like you. They, too are looking for ways to improve their cash flow. Take advantage of what your vendors have to offer to help your company save cash. Perhaps they offer a pay ahead discount, or an electronic payment method. Give your vendors a call to see if you can work out an agreement for discounts or even barter/trade agreements to benefit both parties. As they say, it never hurts to ask.
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