For any business, cash flow is essential to keep operations afloat and is crucial in its success. Since it’s a vital part of the operation, managing cash flow is often challenging, especially for small-to-medium enterprises (SME).
While maintaining business cash flow is a common problem, that doesn’t mean that there’s no way to manage it better. If you’re wondering what these ways are, read on below to learn more.
#1 - Get Your Accounts in Order
First and foremost, you have to get your accounts organised. This helps because it allows you to monitor where your money goes. Since we’re in the digital age, you can use online account management programs like Xero for easier accounting.
#2 - Create a Cash Flow Statement
Once your accounts are organised, the next step is to create a cash flow statement, a document that shows a cash flow analysis and the remaining money left in your business’ bank account at the end of every month.
If more money came into your account than went out, it’s called a positive cash flow. It’s a good sign that your business meets its current day-to-day operating expenses without taking on additional debt. If you have a negative cash flow, it’s best to analyse your spending habits and streamline your expenses.
#3 - Enforce Credit Policies
Many factors can hinder a business’ cash flow, and one good example is late payments from customers. If they don’t pay their invoices on time, implementing credit policies and procedures will help solve this problem. It can cover many things, such as requiring a credit application from other businesses, checking credit references, and following up immediately whenever payments are late.
#4 - Find Out Your Average Debtor Days
Debtor days refer to the average number of days it takes for your customers to pay you after sending them an invoice. Discuss and employ measures to reduce your average debtor days for better cash flow.
#5 - Make it Easy to Pay
You can use a clear, straightforward invoice template that presents all the ways that you accept payments. These include EFT, credit cards, or even digital wallets. Make sure that everything in your invoice is presented clearly to make everything as easy as possible for your customers.
#6 - Offer Early Bird Discounts
Another great way to get a customer to pay you out of their own volition is by giving them discounts if they pay early. The discount amount is up to you, and you can set the price depending on your financial circumstances.
An example will be giving a customer a 3 per cent discount if the invoice is paid within 15 days. While it might not seem like much, it can boost your business’ cash flow.
#7 - Make Use of Short-term Business Finance
If all else fails, you can always get a business loan in the form of short-term financing. The application is pretty straightforward, and the money will go to your account fast, giving your business an extra bump in cash flow.
Cash flow management is one of the more challenging parts of owning a business, but there are ways that you can manage it better. The above information details ways you can implement it in your business, so be sure to use them well.
Swell Financial Planning takes pride in providing our clients with top-quality financial services. Our financial advisers in Queensland are well-equipped with the knowledge in all matters related to managing finances, so you can be sure that you’re in good hands. If you want to manage your finances effectively, please don’t hesitate to contact us for a consultation!