19 Oct The Best Way To Deal With Cash Flow Problems
Most small business owners struggle with their cash flow at some time or the other. When they try to unlock funds, they find it affects their operational capacity. If you are facing cash flow problems and are looking for ways to channel some money into your business without affecting the way your business functions, mentioned below are some pointers to follow.
Finance sources you can tap
When business owners are short on fund, the first thing they think of is loans and banks. However, there are a number of other resources you can easily tap before asking either for an overdraft extension or a new overdraft. It’s often possible to free up funds from within the business by revisiting your business systems; sometimes, these funds might be sufficient for your immediate business needs. In order to free up these funds, the different things you could look closely at include:
These include stock, vehicles, fittings and infrastructure, property, pre-paid expenses, debtors, plant and equipment. Each of these is can be a source of funds.
Check and see whether you are letting some of your customers buy your products and services on credit for months on end? This is quite a common occurrence in smaller businesses where the owners are so focused on getting their business off the ground, services fulfilled and products out of the door that they fail to pay enough attention to some basic business procedures. And most customers will take advantage of it. Some of the things you can do to fix this problem include:
• Get your invoices out promptly- Improve your efficiency with sending invoices out early as this is essentially your cash flow. All the invoices should be sent with the goods and you should date the invoice from the day the product was delivered/the service was completed, rather than sending them out on a specific common due date for a invoices. The earlier your invoice date, the earlier the chances of you getting paid.
- Change the payment terms – You can consider changing the terms for new customers or some of the existing ones; and can reduce the duration of the payment term from 14 days to seven days from the date the invoice was sent.
- Prompt follow up – It’s crucial that you or someone from your team follow up promptly when an invoice isn’t paid by the due date. You should be firm but polite and its best to delegate this job to someone from your team as most customers will require more than one reminder before they make the payments.
- Offer discounts – Consider offering discounts to customers that make prompt payments. While this may not be a great option for a low-margin business, it can be an option for companies that work on high-margins. You would have to work out whether the use of the money gained earlier is actually worth the discount you are offering.
Check whether you have too much capital tied up in stock; this generally occurs in two different ways:
- Having lesser amounts of fast-moving items and excessive slow-moving items.
- Carrying too many items that you could easily obtain from your suppliers at short notice.
It’s vital that you regularly review your turnover rates and stock levels as well as your purchase policy. Assess whether you are able to free up some cash by reducing stock. If you have too much of slow-moving stock, you should consider having a quick sale. That may help get some money in quickly. These are just some of the things you can do to improve your cash flow.
For effective and sustainable cost reductions & efficiencies that will increase your bottom line, contact the experts at Benchmark Cost Solutions at this number – 1300 170 585. If you prefer, you can also request a call back or write to us at this email address.
Thanks for reading,
Benchmark Cost Solutions Team
1300 170 585