By Margot M
As a business owner, you’ve probably had your fair share of difficulty managing your cash flow. It’s actually one of the hardest aspects of running a business. You have to examine a lot of factors to master the delicate art of managing cash flow. Ultimately, you just need to get a lot of cash flowing into your company quickly, and you need to get as a small amount of cash flowing out slowly. Sounds easy, right? Unfortunately, it isn’t always. But there are some things you can do to make it simpler. Try using inventory management software and the other tactics below.
1. Study your cash conversion cycle. This means you need to know how long it takes for you to purchase materials, sell goods, receive payments from customers, and pay the bills to keep your company running. The cash conversion cycle can tell you a lot about your cash flow. For instance, it can tell you when money is flowing into the company, and when it is flowing out. You can use this information to figure out how to get more flowing in.
2. Get customers to pay you when they should. This may mean that you have to change the way your company handles it accounts receivable. You can start charging customers penalty fees for late payments. This will get a little extra cash flowing into the company, and it will discourage tardy payments in the future. You can also send customers email invoices and reminders about when their payments are due. A lot of times clients don’t pay on time because they simply forget to.
3. Don’t issue credit to customers who may not be able to pay you. Conduct a credit history check on clients who want to make big purchases on credit. This will cost a little money upfront, but it will save you money later because you won’t have to pay to send any accounts to collections.
4. Hold off on paying your bills for as long as you can. Study your cash conversion cycle, and find suppliers that will let you pay during the time of month when you know you have the most cash freed up. If possible, wait until you’ve received all your monthly payments from customers to pay your bills. Once you do pay, use an electronic funds transfer system to pay your supplier quickly and directly from your company bank account.
5. Always know the status of your inventory. This includes raw materials, in-progress products, and finished inventory. It’s a lot to monitor on your own, so look into inventory management software online. This software will help you identify the right timing in regard to ordering certain materials from suppliers. It will also let you know which of your products are not selling well and which are. This helps you know what you need to order more of as time progresses and what product lines you might want to discontinue.
Managing your cash flow isn’t impossible. It just isn’t always easy. Follow the suggestions above and figure out what works best for your company. With a little effort, you can make a huge difference in terms of your company’s positive cash flow.