Ensure Your Cash Position Is in the Positive
As most business owners know, managing cash flow is critical to its survival and needs to be carefully controlled at all times. Essentially, cash flow indicates the well-being of a company and helps to determine a company’s ability to pay its bills. Unfortunately, lack of cash is one of the leading reasons growing businesses struggle and why some eventually close their doors. Here are 7 ways to ensure that your cash position is functioning positively.
1. Negotiate better payment terms.
Try to negotiate with your suppliers for longer payment terms or even in installments, especially for larger purchases. Your strategy should be to pay your suppliers later and collect from customers sooner. While it may not always work perfectly, if you are successful you will reduce the need to use personal funds or to seek financing. And, if you are a first-rate customer, suppliers should be more than happy to oblige you.
2. Use inventory efficiently.
Far too many businesses carry higher than needed inventory levels for fear of running out of product for their customers. In some circumstances, these companies become an extension of their supplier’s warehouse. Ideally, strive to carry minimal required inventory levels and only replenish what’s necessary. As a result, it will prevent a needless drain on cash.
Related article: 11 Ways to Improve Inventory Management
3. Grow your customer base.
Not surprisingly, many small to medium enterprises rely on just a few customers to generate the majority of their sales. Having only a few key customers increases the risk of not having a positive cash flow if one of these customers experiences any unfortunate business difficulties.
4. Efficiently administer accounts receivable practices.
Unpaid customer invoices can halt a business in its tracks. Don’t wait to send out invoices at the end of a monthly cycle; instead send them out whenever a project or sale gets completed. Likewise, for any overdue accounts, be sure that you are sending out timely statements and friendly follow-up reminders to get the attention of the customer.
Many growing companies find themselves facing a cash flow gap waiting for customers to pay their invoices 30, 60, and even 90 days. Business owners who turn to invoice factoring for immediate access to capital have found this a fast and easy solution to bridge the gap between invoice and payment. When you sell your invoices to a factoring company, they now collect payment from your customers for the invoices you factor alleviating one more administrative task.
5. Avoid offering discounts.
Even though providing a discount for early payments is an effective way to generate cash sooner, it also can be an expensive proposition. However, use of the program could selective and on a short-term basis to offset any temporary softness in business activity. Be mindful not to make it a standard operating procedure as it could cause margin erosion of your products and services.
6. Apply stricter credit terms.
Typically, many business owners have lax payment terms and usually allow customers to extend their credit beyond a reasonable amount of time. While it may please the customer, it can severely impact your ability to meet the financial obligations of the business. You want to make sure that you have favorable payment terms that work for both you and your clients that allow for larger jobs and purchases.
Related article: Reduce Risk While Offering Credit Terms to Customers
7. Establish a contingency fund.
A primary reason that a growing business fails is the lack of adequate cash reserves. If your business is profitable, you should have more cash available to put to work in an interest-bearing account. Not only will that action create additional capital, but it can also be used to offset any financial setbacks due to a slowdown in the business.
Implementing these techniques will improve positive cash flow and better position your business for financial stability.
About Universal Funding
Universal Funding is a private funding source that has funded thousands of businesses and more than $2 billion since 1998. We turn your accounts receivable into the funding you need through invoice factoring and can have capital in your hands in a matter of days.