Suggestions for Improving Cash Flow
Collecting receivables as quickly as possible is the most common strategy to improve cash flow, but there are many more things you can do. Let’s look at some of them.
Increase sales
While increasing sales will certainly bring in more cash, it is the most difficult strategy to pursue. First, its success depends on external factors such as the economy and the ability to attract new customers. Second, it is no quick and easy fix. You can’t say one day, “Let’s increase sales.” Realistically, you can’t expect results for months. Increasing sales takes time and involves costs: more inventory, production, sales and promotion costs. In the long run, of course, for your business to grow and prosper you must increase sales. But this doesn’t work well as a short-term cash flow strategy.
Raise cash internally
Many of us keep inventory items around that are slow-movers because we believe, rightfully so, that we have to be able to meet our customers’ needs at all times. But meeting their needs does not mean you have to have the item on hand and in stock. Overnight delivery is available practically everywhere once you know where to get the desired item. Reducing in-house stock can save a good chunk of cash.
Speed up receivables
When the economy is sluggish, it’s inevitable that receivables slow. To maintain your business’s financial health, it’s more important than ever that you pay attention to those receivables. Some tips include:
Be systematic. If you don’t have a well-structured system for dealing with receivables, institute one now. Nothing dooms collection efforts more than a non-systematic approach.
Bill promptly. Remember, the longer you take to invoice, the longer the wait for payment. Find a way to send invoices daily and your cash flow will improve.
Take action as soon as due dates are passed. Too many businesses wait 30, 60 or even 90 days beyond the due date before sending any sort of notice. Accountants, lawyers and other collection professionals cite delay as a prime mistake small businesses make. The longer you delay, the less likely you’ll get paid.
Collecting receivables as quickly as possible is the most common strategy to improve cash flow, but there are many more things you can do.
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