Maintaining a healthy cash flow should be one of the main priorities of every decision maker in a modern business. However, many businesses fail to do so and this can have disastrous consequences for the organization in question. Despite this common problem in many companies, there are some simple and effective ways to improve your business’s cash flow, like those mentioned below.
Get a Financial Management Qualification
In order to get to grips with your cash flow situation, it’s essential to have a greater understanding of the financial world and how money works in a business. A course like the online master of science in finance is designed to cover all of the main financial aspects of a business, including how to manage your cash flow properly. The skills and knowledge you obtain by completing an MS finance online course are invaluable and they will prevent you from making common finance-related mistakes in the future.
Be Careful About Who You Deal With
When it comes to business, it’s tempting to want to deal with everyone who says they want to buy your products or services from your business. However, some customers may have shady pasts or have a habit of not paying for the products and services they receive. This becomes an even bigger concern when large sums of money are involved.
To protect yourself from these people, you need to take certain precautions. You can do this by carrying out credit checks or asking other businesses what their experiences were like with certain clients.
If the results of this research show you that a potential customer has a record of not paying for the products and services they receive, you should inform them that you will need an upfront payment or politely tell them that you can’t provide the product or service they require.
Encourage Customers to Pay On-time
Ideally, you should invoice your customers immediately after they have received a product or service and encourage them to pay as quickly as possible. You can do this by giving a discount for fast payments or give them other good reasons to pay you on time. Just make sure that the incentives you are offering (apart from discounts for early payments) are relevant to your particular customers. Faster payments invariably help a business in maintaining their cash flow.
Add Penalties for Late Payment
Just as discounts and other incentives encourage a customer to pay you on time, penalties often discourage them from missing the deadline. It’s not that different from the reward/punishment systems employed in educational institutes and it works on adults as well. Everybody wants to save money if they can, so on seeing that they are actually losing money by ignoring their bills, customers will be more vigilant in paying bills out in time from the next cycle onwards.
Look for Up-front Payments
Where possible, you should always look for up-front payments from your customers. This simple approach will save you a lot of time and stress and ensure that there is a constant flow of money into your business.
Give Customers Multiple Payment Options
Different customers like to pay for their products and services in different ways. Each year, new payment methods become available, so provide as many payment options as possible. This has the potential to increase your sales and increase the likelihood that you will get paid on time. Nothing sells better than convenience and the ability to pay in whatever way they find to be the most convenient to them will result in faster payments.
Leasing Might be Better than Buying
It cannot be denied that leasing might ultimately turn out to be more expensive in the long run and that’s exactly why a lot of businesses prefer to buy their equipment, supplies and real estate. However, leasing could still be a better option than buying for small and medium sized businesses because it means that you will be paying in small increments, rather than losing a lot of cash in one single transaction. A steady stream of cash and a reliable reserve is necessary to run a business and improve cash flow.
Buy in Bulk at a Better Price
If you run a business then you probably already buy in bulk, but the question is, do you get the best price on your purchases? This is why you may consider joining or even starting a buyer’s association. If a number of companies with similar interests are buying from the same supplier, then you will be able to negotiate a better price on account of the large size of the bulk orders.
Don’t Sell at an Ultra-Low Price
The market is extremely competitive today and chances are that it will only get more so down the line. As a result, it is easy to make the mistake of selling your products/services at an ultra-low price in order to beat the competition. It is, however, a mistake and is often found to be a common problem responsible for reduced cash flow. Also take into account the fact that good products sold at a very low price makes customers underappreciate the value that they are getting for their money. The term “cheap” should never be associated with quality products because even if it is true, perceived value of the product goes down significantly.
Take Another Look at Your Contracts
If you have long term contracts with other businesses, it might be a good idea to take another look at them and see if you can’t make a more cost-efficient arrangement than what is already there. Even by making small adjustments, you might be able to make a big difference in terms of cash flow. Re-negotiations will likely work best with businesses that you either already have a long term relationship with or the ones that have the potential to be your partner for the foreseeable future.
Poor cash flow is a serious concern for many organizations and it can often destroy otherwise successful businesses. However, if you follow the tips above, you will put your business in a much stronger position and it will always have a healthy cash flow.