I don’t need to tell you the importance of cash flow – particularly in small business.
There are many ways for you to improve your cashflow simply by altering your business processes and taking advantage of things such as interest-free days on credit cards where possible.
Other ways include:
- Ask customers to make deposit payments at the time orders are taken
- Move old, outdated inventory.
- Do not over-order stock. Product that sits on the shelf is costing you money in extra interest payments. Also, the more stock you have sitting around, the more cash is being lost because that stock could have been converted into cash. Only hold sufficient stock to keep the business and the clients happy.
- It is more critical to have spare parts available (if that applies to your business). Spare parts offer reliability to clients so have a good amount of spare parts handy for quick repairs etc.
- Check your prices. Some businesses record consistently increasing sales figures, yet their cash situation is critical each month. If this is the case it is possible that there is not enough profit built into the products and services while sales are only covering the cost of getting the product out.
- Issue invoices promptly with thought towards the customer’s payment cycle.
- Prepare a list of your creditors (those you owe money to) and if possible make arrangements to get extended payment terms. For example, instead of getting 30-day payment terms, see if it can be extended to 60 or 90 days. Remember, this is interest free money and having the extra time gives you the ability to collect all your money before you have to pay your bills.
One of the most common ways that small businesses let their cash flow down is by being too nice when it comes to bad debt.
Don’t ignore it.
Monitor your cash flow constantly and make sure you are not letting your bad debt slip.
Here’s some ways you can eliminate bad debt:
- Check the client out before hand. If you are concerned about non-cash customers, require a credit check prior to commencing activity.
- Don’t offer long payment terms.
- Offer a discount for prompt payment, such as 5% off for payment within 7 days.
- It does not need to be personal. If you are a sole practitioner, set up an email address for accounts and do not sign your name to it (e.g. accounts@sydneyinsurancebroker.com.au).
- Go and collect the cheque (how many times have you heard, “the cheque is in the mail, it really should be there soon”?).
- Use a debt collector where required. Some businesses feel this is too harsh, however you need to remember that they are holding your money and there are many professional and considerate debt collection companies who will treat your clients with respect.
- If your debtors aren’t paying you on time, sign up to CreditorWatch to expose bad debtors and be alerted when the businesses you trade with fail to pay.
