Cash flow management is a fundamental aspect of every business, but it can be daunting to stay on top of it when there are so many other responsibilities that need your attention. That is why we have compiled a list of seven powerful secrets to successful cash flow management. By setting up a system based on the following guidelines, your business will have better control of its cash flow.
Seven Secrets to Successful Cash Flow Management:
1. Negotiating better terms with clients and suppliers
It will be easier to manage your cash flow if you can count on a steady stream of income without unexpected delays. Your clients understand that they need to pay and most are willing to pay earlier, especially if you offer an incentive. Set up the terms at 30 days, but then offer a small 1 or 2% discount for payment within in 15 days. Setting up convenient terms in advance, will ensure that you are not trying to balance your payables while waiting on a receivable.
The same can be done with a supplier. Negotiate longer terms and inquiry if they will offer a discount for early payment. By improving your terms with clients and suppliers, you will have greater flexibility in regards to your cash flow.
2. Use online invoicing to get paid faster
Online invoicing companies have systems in place that will make it easier for you to get paid faster. They have direct billing options, where the invoice is emailed immediately to the client. Their program can even request a read receipt, so you know it has been viewed.
3. Send reminder notices to clients
The online invoicing companies previously mentioned also have reminder notices, to help your receivable move its way to the top of the pile. Sometimes that old adage “squeaking wheel gets the oil” works and reminder notices have proven to be highly effective.
4. Creating a cash reserve for potential growth
Successful cash flow management involves keeping some aside for emergencies or unexpected growth. It is a good idea to create a separate account and put 1-5% of your profits in it each week or month. This account should only be accessed if there is a sound investment opportunity, a sudden need to expand, or if there is no other method for covering necessary expenses.
5. Review your cash flow statement at least weekly
Regular analysis of your cash flow is essential for proper management. This was you can catch things early and know exactly where you stand when making financial decisions. It helps if you are able to access your cash flow statement from anywhere at any time.
6. Working with vendors to spread out payments
It will help if your vendors are willing to be flexible with due dates. This will allow you to spread out your payments, so everything is not due at the end of the month.
7. Cut any unnecessary expenses
Every business should go over their expenses at least quarterly and assess which ones are actually needed. Businesses need to identify wasteful practices and ways to reduce costs, without sacrificing quality or service.
These seven steps to successful cash flow management will ensure that your receivables are coming in on time, that your expenses are manageable and necessary, and that you are monitoring your situation as often as possible. By sticking to these guidelines, it will be easier to stay on top of your finances and avoid the stress cash flow issues.