Every cent of cash you have tied up in overdue customer invoices or unused stock is costing you money in interest as well as the opportunity for expansion and growth. You could increase sales to increase money coming into the business or you could consider restructuring your finance arrangements. However, there are some more straightforward steps that you can take to improve your business cash flow. Here are ten practical steps you can take to ensure that you make the most of the cash you have coming into your business.
1. Fulfill Sales Orders as Quickly as Possible
Having a full order book is excellent news for a business, but it’s not worth a dime until you fulfill those orders. So, aim to cut down the time between receipt and completion of a sales order. Make sure that orders get completed accurately as well because product returns will delay the payment of your invoices.
2. Get Your Invoices Out Faster
The faster you get your invoices out to customers, the faster those invoices will get paid. Don’t wait until the end of the week to raise your sales invoices. Send invoices out as soon as the product is shipped.
3. Offer Early Settlement Discounts
Give your customers an incentive to pay you faster by offering early settlement discounts. A discount of only one or two percent could be all that it takes to encourage your customers to pay you earlier. A small settlement discount will improve your cash flow and cost you less than the cost of financing the outstanding invoice out of your working capital.
4. Keep on Top of Overdue Accounts
As soon as a sales invoice becomes overdue, chase the customer for payment. Note down all the conversations you have with late-paying customers, and always set yourself a date for a follow-up call. Some businesses will only pay you when you chase them. If you let them regularly pay their invoices late, you will be funding their business for them interest-free.
Consider Invoice Factoring
If the above tactics don’t work, or you need working capital right away, another option you may want to consider is invoice factoring. Invoice factoring, also known as accounts receivable financing, is the process of selling your unpaid invoices to a factoring company in exchange for immediate cash. The factoring company takes a small portion of the money you earn, but the payoff is that you aren’t waiting on customers to pay their invoices for 30, 60 or 90 days.
5. Negotiate Better Payment Terms with Your Suppliers
You can slow the rate that cash leaves your business by negotiating better credit terms with your suppliers. If you are a long-term, reliable customer, a supplier won’t want to lose your business, so they may extend you more attractive terms if you ask them to. If you can get a further 30 days to pay a large supplier, that’s 30 days interest-free credit that will help to improve your cash flow.
6. Pay Supplier Invoices When They Are Due
Pay your supplier invoices when they are due, but not before the due date. Paying invoices before they are due won’t gain you anything. But, paying suppliers late could cost you late payment interest, penalty fees, and supplier goodwill. It is that supplier goodwill that will help you gain better terms the next time you come to negotiate with the supplier.
7. Don’t Carry Excessive Inventory
Keep a watchful eye on your inventory levels. Finished goods or raw materials in your warehouse all represent cash that is tied up. Sometimes, buying products in high volumes to get a better price can be counterproductive if those goods sit in a warehouse for too long.
8. Cut Unnecessary Expenditure
Look at your accounts to see where you could cut down on the running costs of your business. There could be items you are spending money on that you do not need, and there could be cheaper alternatives.
Related: How to Cut Business Costs
9. Consider Leasing Assets
Leasing assets reduces the amount of cash that you will need to pay out in one go. Even though leasing can be an expensive form of financing, you may be able to use the cash that leasing frees up to compensate for that extra cost.
10. Monitor Your Cash Flow
Business cash flow is one of the key performance indicators that you should monitor regularly. If you fail to keep an eye on the cash flowing in and out of your business, you may not spot a problem until it is too late. Monitor your payables and receivables as well because your debtor and creditor balances will impact your cash flow when they become due.
The Bottom Line
If you implement some or all the above tips, it will help improve your cash flow. Cash tied up in inventory or debtor balances is costing you money and could be holding your business back. And, you can never recover the money spent on unnecessary expenses. Most importantly, don’t leave cash flow management to chance.
Your Questions Answered Quickly
Whether your business is thriving and you can’t keep up, or you are waiting on clients to pay, Universal Funding can help your growing company. Call us at 800.405.6035 or complete our rate form today to learn more about invoice factoring and how it can improve your company’s cash flow.
About Universal Funding
Universal Funding is a nationwide invoice factoring solutions leader, supporting growth-focused businesses with scalable factoring solutions. With its invoice factoring, payroll funding, and purchase order financing services, Universal Funding provides clients with the working capital needed to grow and support their businesses without taking on new debt. Ranked as one of the nation’s top invoice factoring companies, Universal Funding provides cash flow financing for businesses all across the United States.