cashflow chart

How to improve your company’s cash flow

How well does your company manage cash flow? In a 2019 survey by Intuit Quickbooks, researchers discovered that about 61% of small businesses around the globe have cashflow-related challenges. 32% of these entrepreneurs have been unable to remit payments to employees, vendors, or pay pending loans due to cash flow problems. It goes without saying that cash flow issues are among the leading reason some of these businesses eventually fold up.

So, what is cash flow and why is it important to manage it?

Cash flow is an accounting term used to describe how money moves in and out of a business. It compares your business’s income or working capital and expenses. To enjoy a healthy business state, there should be a balance between how money comes in and goes out of the company. Ideally, expenses shouldn’t be more than the money coming in. Otherwise, the business won’t remain operational.

You can calculate your business’s cash flow by summing up your monthly cash receipts and subtracting the total cash payments. To get a better idea of the state of your cash flow, do this calculation for several months. Basically, you want to have a positive net cash flow – where the income is more than expenditure. With a positive cash flow, it becomes easy to meet your monthly expenses and have extra income that you can invest in business growth. 

Various things can go wrong if your business doesn’t manage cash flow effectively. For instance, you may end up with excess stock. This means you bought more than your customers are able to buy within a specific period. In this case, you risk having obsolete stock and losing money. Other consequences of improper cash flow management include excess trading and overspending.   

Now, it’s crucial to note that even a business that makes huge profits can run into cash flow woes. How? Think of a situation where this business invests most of its profits in new ventures and leaves little for daily operations. Despite making profits, the business will still run into problems if it can’t cater for regular expenses or emergencies such as a broken van or a damaged company computer.  

12 Proven Ways to Improve Your Company’s Cashflow

Send Invoices Promptly

Most customers pay only when you send invoices. The faster you invoice these customers, the earlier they begin submitting their payments. Today, technology has made it easy to create invoices. The most important thing is to ensure that your invoices are easy to read and understand. On each invoice, consider putting the due date of payment on several, visible positions. Your invoice should also show the modes of payment you accept and other important information such as any penalties charged for late payment.

Opt for leasing instead of buying

For a business that’s concerned more about the bottom-line, leasing may sound contradictory. In any case, leasing becomes expensive in the long-term. However, leasing equipment, supplies, or business property allows you to pay in manageable installments and such an arrangement will boost cash flow. 

Collect Outstanding Debts

When you are cash-strapped, an easy way to help the situation is to revisit your debtor’s book. Make the necessary plans to go after any debtor whose payment is overdue.

Pay Vendors in Time

This not only gives a clear idea of how much cash is at your disposal but also prevents unnecessary penalties. You will also take advantage of vendors who offer discounts on early payments. Paying on time will save you cash thus increasing your working capital.  

Encourage Early Payment 

Getting your clients to pay in time ensures that you have money to run your business. However, it’s not always an easy task. That’s why we share a couple of strategies you can use to encourage early payment. These include: 

  • Offering discounts – offer incentives to attract early payment of invoices. If the invoice is due in 30 days after issuance, state an offer for anyone who pays within a week or two. Buyers always look for deals and will want to pay faster just to get this discount. 
  • Adjusting payment terms – consider decreasing the installments to make it easier for customers who may have financial challenges. You could also move the invoice due date closer. Make sure you discuss any changes with the customers beforehand. 
  • Sending invoice reminders – send regular reminders to customers about their pending payments. It could be an email or text message just a couple of days before and after the due date.
  • Charging a late payment fee – a strong invoicing policy can boost your cashflow. If you want to use this trick, have a specified date of payment for invoices and make it consistent. Communicate the penalty for late payment to your clients upfront. Implementing such a policy properly not only encourages your customers to pay in time but also makes you look professional.

Take Inventory of Your Stock

Keep a track of how your goods come in and move out. Stock inventory enables you to identify goods that move and those which are slow. Consider buying more of what moves faster.

Join a Buying Cooperative

Find like-minded businesses with whom you can pool resources and buy in bulk. This can earn you huge discounts with suppliers. 

Negotiate With Suppliers for Better Terms

Another way to boost your cash flow is by lowering expenditure. So, if you talk to regular suppliers to charge you less or offer discounts, you save some cash that you can use to cater to other operational costs. It’s possible to gain discounts if you pay early or keep a friendly relationship with your suppliers.  

Consider your Customer’s Credit History

Before you allow anyone to get your goods on credit, consider their ability to pay. Usually, if a customer has defaulted on previous debts, they may not guarantee you payments. You can avoid bad debts by conducting a credit check. You just need to order this report from a credit check bureau or hire the services of a credit screening agency. 

Move Your Business Online

If it’s possible for your business to run virtually, moving it online can boost your cash flow by reducing credit or payment delays. When customers order items online, payment is almost instant or at least guaranteed since goods can’t be shipped until the payment processing goes through.

Expand Your Sales Territory

Another way of boosting cashflow is by increasing income. Figure out if your business has untapped opportunities. Perhaps your business can improve sales by introducing new products, revamping marketing, or finding a new target market.

Consider Opening a Business Savings Account

This trick works well if you find business savings account with high interest. Savings account cushions your business against unexpected cash flow challenges and can earn you interest as well.

With the above tips on how to improve your company’s cash flow, your business should regain control of its receivables and outgoings. However, if you need an urgent boost to your working capital, do not hesitate to seek financial aid from trustworthy loan comparison websites such as CrediNord. This lender has supported numerous Nordic small businesses so far with its comprehensive business loan facilities. Through CrediNord you can apply for and compare different working capital loans. Applying for a loan through CrediNord only takes a few minutes and you can get offers on the same day.