Keeping track of the cash flow is essential to the running of any successful business, big or small. Businesses that can effectively manage their cash flow from the beginning tend to be more profitable in the long run.
Before proceeding, it is important to remember that cash flow and profits are two different things. A profitable business does not necessarily have a positive cash flow – and poor cash flow is one of the main reasons that more than 50% of startups fail.
This article will outline five ways that can be adopted by a business to increase their cash flow.
1. Use software to stay on top of the cash flow
Invoicing software is not only vital, but also considered to be the simplest method for keeping track of a business’ cash flow.
Invoicing software can automate several business processes, as well as provide an overall view of a business’ cash flow at any given time. As such, the software can allow businesses to both organise and register all sales – keeping track of both ingoings and outgoings.
2. Provide employees with cash flow training
Educating employees on the importance of a positive cash flow value is crucially important. This is because their understanding can impact any contract or deal negotiations that they are involved in. For example, it is always important to be transparent with relevant employees in instances of large orders of long-term contracts. This is because it could benefit the business to make regular monthly payments for the goods or services, as opposed to one large payment.
Furthermore, transparency with employees can also help in scenarios where things may not always go to plan. For instance, where there might be long delays on shipments, changes to volumes ordered of a good or when a customer decides to cut ties with the business. This is because it means an employee can flag the short-term impact that the above may have on the business in the short-term.
3. Ensure to send out invoices promptly
Usually, the faster you send out an invoice, the sooner you should expect to receive payment. It is important to keep track of all invoice send-outs if this is not the case, as you will be able to send out reminders to late payment-makers.
A business should make sure that any invoices they send out are always clear and specific in terms of details, especially the due date cut-off point for payment.
Further, where possible, businesses should try to get cash advances from clients, whether it is the form of a deposit or getting 50% of the payment upfront for working capital. This is common in web development, marketing, catering, prototyping, retail and more.
4. Try to reduce operating costs
It is important that sufficient time is allocated regularly to review a business’ expenses. These regular reviews can allow a business to cut costs, as what they might spend a lot on in one quarter may not actually be necessary for the next.
Outgoings that may not benefit employees or the growth of the business should not be deemed as necessary and stopped in this instance. However, it is always important to make sure that any cuts are not made in areas that could be detrimental to business growth in the long run.
5. Offer a number of payment options
A business will be paid faster by customers when there are a number of payment methods offered. This is because they will then have the option to opt for the most applicably convenient. Typically, customers will opt to make their payments digitally or online.
Thus, by accepting debit cards, loans paid over installments, ApplePay, credit cards and PayPal for example provides customers with several options to make payment, often meaning that they are likely to pay faster.