Ensure your business always has enough cash
As a small business, it’s important to make sure the gap between money going out and coming in is never too great – or you could be left with a shortage of cash.
To ensure you always have enough money to pay the bills, you should take control of your cash flow management.
What is cash flow management?
It’s a way of checking, analysing and fine-tuning the flow of money in and out of your business.
How to do a cash flow analysis
A quick way to see where you stand is to compare your total monthly unpaid purchases with the total monthly sales due. If sales are higher, great. But if purchases are always greater, you need to make some changes.
To see why you might have cash flow problems and do accurate forecasts for the future, you need to look into areas such as:
- accounts receivable
- accounts payable
- credit terms from suppliers
- credit terms to customers.
6 simple strategies to improve your cash flow
Once you know where you stand, there are simple ways you can improve your cash flow, such as:
1. Sending out invoices straight away
You may be waiting 30 days from invoice so why add more days until your money comes in?
2. Reducing customer credit limits
Do some customers always owe you a lot of money? Can you reduce their credit limit?
3. Offering discounts for early payments
If your terms are 30 days, could you offer a 3% discount for payments within 14 days?
4. Taking deposits up front
Can you ask for a 25% or 50% deposit to commence work? It’s safer for you this way too.
5. Chasing up overdue payments
Send a polite letter or make a call. If they still don’t pay, consider a collection agency.
6. Using an online payment service
Accounting software can help you
Many software accounting programs have reporting features that make cash flow management easy.
Take a look at the excellent products MYOB have for small business.