Cash flow pertains to actual flow of money into and out of the business. Of course, cash flow also relates to the personal financial life of many families! It is used to pay bills, expand business operations, meet payroll needs, or take profits. Your business may suffer from weak cash flow because many of your customers may be paying late. Worse, your venture also has obligations or payables that should be met. It is important to boost cash flow to make sure the money can be used to shoulder all necessary costs. Here are five quick actions you can do.
Pay off your debts
A lot of people underestimate the effect that debts have on your long-term cash flow. People will put off making big payments because – well, big payments every month put a real dent in your cash flow, right? Well, it will seem that way in the short term, but the best thing you can really do is get rid of your debts so that they’re not so intrusive.
The problem here is that getting rid of debt is often an expensive process in itself. We’re now just talking about the base payments, here – a lot of relief plans may put you in more financial trouble than they’re worth. It’s important that you find a debt relief plan you can afford. Getting rid of your debts not only frees up more cash in the future, but it also makes it much easier for you to get any additional loans you’ll need a little further down the road.
Improve collection of account receivables
Your business may have customers that consistently pay late. Find strategic and effective ways to improve your efforts in collecting the dues. You may send out corresponding notices earlier or call accounts managers directly rather than sending out written notices. Keep on sending reminders about payment due dates and about penalties your business imposes for late payments. This is the best time to put such penalties in place if you still do not implement such fees for late payments.
Offer cash or early payment discounts
You may think that the risk of customers paying late means you should get rid of all your financing options. But this can have the opposite effect! So how can you keep financing options but encourage a much more positive cash flow model?
By encouraging customers to pay earlier than the final month of payment completion. It pays to offer your customers discounts or perks for paying in cash or paying early. This action will not only help speed up or improve your business cash flow. In the long run, it can be ideal to your venture because the incentives can truly benefit your customers. They will surely keep their loyalty and patronage of your business.
Negotiate with your suppliers
Try to take advantage of any discount or incentive schemes offered and provided by your vendors or suppliers. Your business may have to pay in cash or pay earlier for supplies purchased. Cash may flow out of your venture sooner but it may also mean flowing out less cash. Try to talk with the vendors or suppliers and negotiate to extend or provide longer payment terms. This way, you may not have to incur penalties while you take your time to collect receivables from your very own customers prior to the due dates of your payables to suppliers.
Use credit cards for your procurements
Use credit card facilities’ billing cycles and grace periods to strategically delay payables. This will be effective if you will pay off balances by the end of every billing cycle. You may take advantage of using credit cards to pay business bills to prolong payments for a few days or weeks. Just make sure you repay the entire amount used by the end of the billing cycle. This way, you can avoid incurring hefty charges, interest payments, and penalties. A lot of business owners and other freelancers underestimate the total costs that all of this comes to, creating big impediments in your cash flow.
Increase your merchandise prices
This can be considered as a last effective option for improving your business cash flow fast. However, this comes with possible risks. You may do so if your competitors’ price tags are currently higher than yours. Being a low-cost provider can be your present advantage that draws in customers. If your costs become at par or higher with those of your rival businesses, your clients may be turned off and start considering alternative products. Weigh the pros and cons before taking this action.
