10 Essential Tips For Improving Cash Flow In Your Company
mproving cash flow is a big help no matter what type of business you’re running, how long the company has been around, or what size of company it is. Every business faces the challenge of managing cash flowing in and out and the more you can improve that process the better off your business will be.
It’s important to realize that cash flow isn’t the same thing as profit. You can be making a profit but still have negative cash flow. In “negative cash flow,” the company’s liquid assets are decreasing and you won’t be able to pay your expenses. In contrast, “positive cash flow” is where the company’s liquid assets are increasing.
With the ten essential tips in this article, you’ll be well on your way to creating a positive cash flow in your company. And if your cash flow is already positive, following these tips can help make things even better.
1) Create A Plan
Start out by getting the whole company on board with making cash flow improvements a priority. Everyone won’t all be directly involved, but a shift in priorities overall will help make the specific tasks easier as you create a plan for how you’ll implement cash flow management strategies. As you start out, you’ll want to designate cash flow monitoring to one or more trusted employees. And you might find it helpful to break-down customers, suppliers, and inventory into separate categories rather than tackling cash flow as a whole.
2) Evaluate Customers and Suppliers
Take a close look at your customers and suppliers when evaluating your cash flow. This is the time to examine the terms you have with long-standing customers and suppliers and re-negotiate those terms if they’re hurting your business. If you find a problem with an existing relationship, reach out and try to fix the issue. And when you’re taking on new customers or suppliers be sure to run a credit check and find out if they’re going to be a liability.
3) Negotiate And Work With Payment Terms
Paying bills on time, and thereby avoiding late fees, is one of the simplest steps towards improving cash flow. You can also look into negotiating early payment discounts with your suppliers. And if they’re not open to early payment discounts, then negotiate for long payables terms and set up electronic payments so you can wait until the morning that the bill is due to pay.
4) Speed-Up Your Receivables Processes
The more quickly you’re able to handle business processes in your accounts payable and accounts receivable departments, the easier it will be to access your money. Be sure to send invoices promptly so you can get paid sooner. And if they don’t pay by the deadline, follow-up promptly and enforce payment disciple. Once you have been paid, deposit payments promptly so you can actually use and access the cash.
5) Create Incentives To Pay
One of the best steps you can take to immediately improve cash flow is offering incentives to your clients who pay early and adding penalties when accounts are late. That means offering a slight discount on early payments and adding interest to payments that run late. Implementing this new payment policy means you’ll get more of your payments on time. Plus you’ll be improving customer service for your best customers.
6) Manage Inventory More Effectively
Your inventory management might not seem related to cash flow, but it actually plays a big role. Items sitting on your shelves represent cash that’s not moving. And there’s no point in tying up your cash by keeping a surplus of products around or stocking products that only sell sporadically. Consider having a blowout sale to clear out a surplus of inventory. Then work to improve inventory tracking and management so you can avoid tying-up cash there in the future.
7) Review and Reduce Expenses
Reducing your expenses is another way to improve cash flow. Review your expenses and then cut back in areas that won’t affect your profits. For example, you can cut overhead costs by switching from a weekly to biweekly payroll schedule since that will reduce processing costs without affecting the bottom line. In contrast, you won’t want to cut-back in marketing. Rather, you’ll want to make sure the marketing budget is being used effectively to increase sales.
8) Boost Company Income
Increasing your income is an obvious way to improve cash flow. Take a good look at your options for improving sales and making more money. You might boost sales with creative incentives like hosting a contest or customer event. You can also look into ways to improve your marketing strategies. And finally, see if increasing prices is an option. You might be afraid of losing customers if prices go up, but there’s nothing wrong with a little experimenting to find the perfect number. This is especially important if your costs went up but you haven’t yet increased prices to compensate.
9) Look To The Future
Knowing your breakeven point won’t affect cash flow. However, it does give you a goal to work toward when managing future cash flow. You want to aim for the point where your business starts to turn a profit and has positive cash flow at the same time. With that goal in mind, come up with a system for cash flow projections in your company. A rolling 12-month forecast, for example, will help you keep an eye on how well your company is doing implementing the new cash flow policies. It’ll also give you a guide to work toward achieving your cash flow goals.
10) Leverage Technology
Technology like cash flow spreadsheets, accounting software, and payment management systems are your best friends when you’re working to improve cash flow. The more you can improve the business processes involved with cash flow, the easier it will be to manage the cash that’s going through them. Things like accounts payable automation, online procurement software, and 3rd party payment management are all going to help with improving cash flow.
If you’re looking for quality business process technology, look no further than NextProcess. We offer a reliable software suite of programs that work together and with your existing ERPs to create the perfect business processing solution for your company. Contact us today to schedule a demo of our products and see first-hand how we can help you work toward improving cash flow.