Improving your cash flow using credit management
Every small business owner understands that maintaining smooth cash flow requires juggling nearly every facet of their business. They need to stay on top of accounts receivable and payables, to extend lines of credit when needed and to effectively manage their inventory levels to stay on top of their demand. The essence of successful cash flow management is regulating the money flowing in and out of your business, so there is never a depletion of funds.
Increasing your cash flow will reduce the amount of fixed capital that you need to support the given level of your business. Relying on credit instead of cash can quickly become expensive and it is vital that you limit anything that is going to decrease your profit structure. An increased, consistent cash flow will also create a predictable business pattern, which will make it easier for you to plan and budget for future growth. If you don’t properly plan for growth, new customers could sink your ship rather than save it.
One way to improve your cash flow is to optimize your invoicing and collection process. If you send invoices immediately and directly to your clients, there is a better chance of getting paid faster. In today’s fast paced business world there is no reason why every invoice shouldn’t be received by your client the same day that you send it.
You can use an online invoicing software where you can pre-set templates and email the invoices in a matter of minutes from when you have finished the job. You can also use the same tool to send reminder notices and thank you letters once payment is received, so everything looks uniform. Using consistent forms for everything you send out will demonstrate your professionalism and organizational skills to your client.
Another way to improve your cash flow is to decrease your credit terms or by requesting an initial deposit. Customers realize that they will need to pay sooner or later. If you negotiate better terms in the beginning, or maybe even after you have proven your capabilities to that customer a few times, you will have more cash up front instead of waiting for sizeable receivables.
It is also crucial that your schedule vendor payments at different times throughout the month, so not all of your expenses are coming out at once. Even if everything is due on the 1st of the month, some can be paid early to avoid everything happening at the same time. It is obviously important that you always pay your vendors on time, but it will be easier to do so if all of your bills are not due on the same day.
Proper, up-to-date financial statements and easy access to reviewing your cash flow will help you stay on top of things. Managing your credit starts with knowing exactly what you have coming in and what needs to go out at any given time. A business won’t succeed if it is constantly accumulating more debt in order to handle its expenses while waiting on overdue receivables.By theodion in Finance Comments Off