Cash flow can be said to be backbone of any company. It does not matter whether you are making thousands of widgets a year or selling vacuum cleaners to households, if you are held back by payments from clients, then you are unable to pay your suppliers for the next batch of products to sell.
Many of the following tips are well known but are often forgotten during the daily priorities of running a business; however they could help you improve your cash flow.
Early Payment Discounts For Customers
Giving discounts to your customers for payments upfront. Some companies will have a discount period of a month that customers must pay within to receive the discount. This is easier to impose than a penalty for late payment and is more favorable to customers too.
Extend Credit With Suppliers
Take as long as you can to pay your bills without incurring a late fee. If a supplier gives 60 days, then take the full 60. Pay your regular suppliers before others; early payments can generate goodwill and improve the likelihood of obtaining credit. However don’t be too aggressive in taking the extended credit. Frustrated suppliers will stop giving you credit and demand payment with when orders are placed causing you to have a worse cash flow position than before.
Invest Wisely Excess Funds
Invest surplus funds in high-interest bearing accounts or other alternative investment that can contribute further to your business. There is no benefit having money sitting in the company bank account. However ensure you have enough liquid funds should then need arise.
Plan Well For Cash Flow Needs
Keep up to date with regular cash flow forecasts. Know when the funds should be received, and when you will have to make payments. This will assist you with the inevitable delays.
Raise Sales Invoices Promptly
Send invoices out as soon as practical. This should be top priority for the daily work schedule. Once issued, make sure you follow up the day after the invoice is overdue. A polite phone call or a second email can assist things along.
Payments Made Electronically
The more options you give customers to pay you the more likely they will. Emphasise your preferred payment type and if your bank gives you permission – Direct Debit.
Request Progress Payments When required
Split payments for longer projects, so that you do not have to wait until the end of a job to be paid. This gives you the security of receiving some payments as well as assisting in your cash flow.
Monitor Stock Movements
Sell slow moving products at a discount, if necessary. These products absorb cash and wastes valuable space in the warehouse. Focus on the better selling, higher turnover items.
Make Payments In Order Of Priority
When things get tight, prioritise your payments . Call all your suppliers and negotiate extended periods or defer your payments. Pay your most important debts first.
Pay Commissions To Sales Team When Invoices Are Paid
Ensure you only pay commissions to your sales team when invoices are actually paid by customers. It also is a good reason for the sales person to have a reason to contact the client again and perhaps make another sale. Business Consultant Sydney, Consulting Sydney.
At Illumina we are experts in building successful growth strategies that ensure you a stronger, profitable, more valuable business. Contact us on 02 9660 8557 or [email protected] for a free, no obligation consultation.
Author Name: David Zaoui
Address: PO Box 647 Edgecliff, Sydney NSW 2027