5 Practical Tips to Immediately Improve Cash Flow
Cash is the lifeblood of every business. Without enough of it you can’t pay your employees or bills and you can’t take advantage of opportunities that may present themselves. Matching cash outflows with inflows is always a balancing act.
Here are 5 things you can do now to immediately increase the amount of cash you have.
1. Speed up collections – The faster you collect money from your customers the sooner it’s available to further your growth. Your answer could be as simple as automatically charging a credit card, providing a link to remit payment, routinely drafting a bank account or offering a discount for early payment. Beefing up your collections process can coax late payers into payment.
2. Slow up bill payment – The longer you can put off paying bills the more time you have to collect the money needed to pay them. Shy away from allowing vendors to automatically draft your account or charge your credit card. Obtain payment terms from as many vendors as possible. 30 days for payment is the goal. 15 days is acceptable.
3. Use credit cards to extend payment time – By charging a bill on a credit card you gain 30 days before payment is required. When this period is tacked on to 30 day payments terms, you’ll have 60 days to collect the money to pay.
4. Get a line of credit – Lines of credit are meant to fill in short term cash flow gaps. You could, for example, purchase inventory then use some of the sales proceeds to pay off the line.
5. Tighten your credit requirements – Before extending credit to a customer run a credit check on the business to make sure he’s credit worthy. Give the minimum amount of time to pay that promotes your customer relationship. Make sure the credit terms are in line with the terms you have with your own vendors. If you give your customers more time to pay than your vendors have given you, there’s good chance you’ll face a cash shortage.