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Pro Tips for Managing Cash Flow in A Small Business

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Do you own a small business? Do you often struggle with cashflow?

The time taken between paying your employees and suppliers, and receiving payments from your customers can be a make or break your business. Consequently, it is important to implement cashflow management strategies that allow you to stay afloat during the toughest times. Cash flow management is the tactful delay of cash outlays while encouraging your clients to pay you as soon as possible.

Below are some tips on how to manage cash flow.

  1. Cash Flow Projections

One of the best ways to manage cash flow is to understand how cash moves through your business. Making projections gives you an opportunity to do just that. A cash flow projection is not really a glimpse into the future, rather it’s an educated guess where you try to balance your customer’s payment history, upcoming expenses and payments to vendors. A well-prepared projection will allow you to spot trouble before it strikes.

To make accurate projections, gather data from service representatives, sales persons, credit workers and your accountant. You should be able to tell how much and when you’re receiving customer payments, service fees, interest earnings, debt payments. You should also have a clear picture of all cash outlays and when they are due. You don’t have to know when every penny will be spent. Instead, focus on what it will be spent on.

  1. Improve Receivables

How long do you have to wait before your customers pay you? If you’re paid immediately, then you’d never have to worry about recievables. Unfortunately, this is not possible for most businesses. The best you can do is to improve the speed with which you get paid. Here are some tips to help you achieve this:

  • Give discounts to customers who pay early
  • Make customers pay a deposit when making the order
  • Request for credit checks for all new non-cash clients
  • Try to get rid of outdated inventory any way you can
  • Issue invoices on time and make sure to follow up
  • Monitor receivables and insist that slow-paying customer pay cash on delivery

 

  1. Manage Payables

Keep an eye on your expenses. It’s easy to get carried away by sales and become complacent with expenses.  If you notice that your expenses are growing faster than your sales, you need to take action. Below are some tips on what to do.

  • Avoid paying your creditors before the due time. Transfer funds using EFT (Electronic Funds Transfer) on the last day. This allows you to hold on to cash for as long as possible.
  • When looking for suppliers, don’t go for the lowest price. Go for those with the most flexible payment terms.
  • Let your suppliers know your financial situation at any one time. You will need them to trust you when you need to delay payment.
  • Don’t take up discounts from suppliers for paying early unless they save you a considerable amount of money.

If all else fails and you still need cash urgently, you should consider factoring receivables. This is an accounts receivable type of financing that helps convert your outstanding invoices (those that fall within 90 days) into cash.

 

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