5 Efficient Tips to Managing Cash Flow

Small business owners are inundated with problems on a regular basis. They have the task to produce products or services in a way that economically sound while increasing sales, satisfying customers, and motivating employees. Though there are a lot of factors that go into balancing all of the above, one thing that seems to resolve most of the issue is cash.

You see, cash flow is the lifeline of any business. Cash is the reason salaries are paid, business is able to operate daily, and customers are able to be satisfied. Without efficient management of cash flow, business owners stand to have a host of problems on their hands with not very many solutions. Utilizing managing tips such as these listed below should keep you out of financial jams within your organization:

  1. Set Clear Payment Agreements

One of the most difficult tasks a manager has when dealing with cash flow is accounts receivable. Getting customers to pay their invoices on time can sometimes be tricky leaving your company hanging in the balance. To keep this to a minimum, it is important to set up strict and clear payment agreements for customers to sign.

When drafting an agreement try to include things like:

Short repayment terms – within 30-90 days maximum should be your goal to have your cash paid back to you.

Penalties and late fees – when a customer doesn’t pay on time that messes up your finances. To minimize some of the blow charging penalties or late fees for payment is ideal.

  1. Consider Invoice Factoring

While you may have a rigorous credit check and strict payment guidelines there is still the potential that a customer will not repay their invoice in a timely fashion (or at all). To maintain cash flow as needed for business it may be beneficial to consider invoice factoring. Companies like TBS Capital Funding will purchase qualifying outstanding invoices from small businesses. This way you receive cash in hand and don’t have to wait for the customer to repay the balance. While you won’t get the full balance owed from the customer, it should be considered when you really need cash to invest back into your business.

  1. Offer Discounts for Early Payment

Customers love incentives and it is a great way to manage your cash flow. Developing a discount program which encourages your customers to pay in a timely fashion will keep the cash flow in a positive standing. While normal payment terms might be 30 days, you can offer something as small as a %3 savings for customers who pay their balance in 15 days.

  1. Consolidate or Renegotiate Debts

Another common issue tying up cash flow is debt. If your company currently has a large amount of debt it may be beneficial to try and consolidate or renegotiate your terms to get more affordable payments. Lenders are often willing to work with customers to resolve debt. If you’ve had previously good standing, they may be able to extend the term of the loan or offer you lowered interest rates so that you can pay the loan off sooner. Either way, it frees up cash that you can put back into the business.

  1. Defer Vendor Payments

Accounts payable is another factor that drains cash flow. To try and hold onto cash as long as you can you can defer payments to your vendors. If you’re expected to pay within 60 days, wait until the last possible minute to do so. This will slow the outflow allowing you to find other avenues from which to generate more cash flow. However, you do want to make sure that you don’t go past your due date. This will only cause you to fall further into debt as vendors may charge late fees and penalties as well.

As they say, money makes the world go round. Without proper money management adequate cash flow, businesses are not able to properly invest in giving the customers what they want. Dissatisfied customers obviously led to ruined reputation and the potential for a ruined business. To prevent this from happening, utilize these cash flow management tips within your organization. It will certainly provide peace of mind and keep business running as usual.