Improving Your Cash Flow – reducing the time you wait to get paid and extending the time you pay your vendors. Managing your receivables to reduce the time you have to wait to get paid can be done in several ways. Start by ensuring your invoice goes out promptly. If payment terms are 30 days from invoice date getting the invoice out sooner will ensure a quicker payment turnaround time. Understanding how your client pays in terms of promptness also helps the cash flow situation. Offering a discount if payment is made sooner gives your client an incentive to pay sooner. Requesting a deposit on the sale helps create an improved cash inflow as does following up with clients to ensure they have received the invoice and there are no unforeseen issues with the product or service. Generally if an invoice is not being paid the reasons for non payment are: the invoice was not received, there is an issue with the invoice or the product or service, or the client is having cash flow problems. Analysis of receivables and client payment history will help in determining slow paying clients. Creating policies that ensure prompt payment can help reduce the time outstanding for slow paying clients. With today’s technology ensuring invoices are being received by the right department and setting up payment options with clients to create an environment that works for all has never been easier.
Managing your payables can help you retain your cash for longer periods. Don’t let expenses get out of control or grow as fast as sales. Staying on top of your expenses will help you control costs. Know your creditor terms, if an invoice is due in 30 days don’t pay it in 10 days. If paying by electronic funds transfer is an option pay on the day the payable is due. Determine if discounts for earlier payment is a favourable option in reducing your costs. If you have to go into a loan situation to capitalize on the discount the discount my end up costing you more than the savings realized. Understand which suppliers to use, don’t always choose the supplier that charges less as a supplier with better payment options may help you utilize your cash in a way that improves the profitability of you business. If you use your credit card to pay your bills make sure you can pay the balance off each month so you don’t incur interest charges. Communicate with your vendors if you can’t pay or you will be late paying an invoice, you do not want to be put in a position of having to pay up front.
Managing a cash shortfall should be done before it happens. Don’t wait until you are in a cash poor situation to get help. By managing your cash flow you will know when you may run short and you can find a solution long before it happens. Set up a line of credit or a potential loan while things are good. Determine possible credit arrangements with suppliers as it is in the best interest of suppliers that you remain one of their clients. Arrange for the sale of your receivables to a company that purchases receivables or request quicker payments from your best clients. Make partial payments to vendors or sell off old equipment or inventory no longer in use. Arrange to lease back equipment to companies involved in lease financing. There are many ways to manage a cash shortfall, being aware that a shortfall is coming will help you manage and get through a shortfall and keep you business in good standing and most importantly operational.