3 Strategies To Improve Your Small Business Cash Flow

Managing your cash flow is crucial to the success and sustainability of any small business.

It ensures that you have enough money to cover your expenses, invest in growth opportunities, and weather unforeseen challenges.

In this blog post, we will discuss three effective strategies to improve your small business cash flow and help you achieve financial stability.

1. Streamline your accounts receivable process

A key factor affecting cash flow is the time it takes for customers to pay their invoices. Late payments can disrupt your cash flow and hinder your ability to meet your financial obligations. The faster the turnaround, the better for your cash flow.

To streamline your accounts receivable process and improve cash flow, consider implementing the following practices:

a) Invoice promptly and accurately: Send out invoices as soon as products or services are delivered, ensuring all details are correct. This will help speed up the payment process.

b) Offer incentives for early payment: Encourage customers to pay early by providing discounts or other incentives. This will incentivize prompt payment, increasing your cash flow.

c) Implement a collection system: Establish a clear process for following up on overdue payments. Regularly communicate with customers regarding outstanding invoices and provide options for payment, such as online platforms for convenience.

2. Control your expenses

Maintaining a healthy cash flow requires monitoring and controlling expenses.

By identifying and reducing unnecessary expenses, you can free up cash to invest in growth opportunities. If you do not manage the outflow of cash, your business could fail.

Here are some strategies to help you control expenses effectively:

a) Review and negotiate supplier contracts: Regularly review your supplier contracts to ensure you are getting the best possible terms. Negotiate for lower prices, longer payment terms, or volume discounts to reduce costs.

b) Optimize inventory management: Excess inventory ties up valuable cash that could be used elsewhere. Implement a system to track and manage inventory levels, ensuring you only stock what is necessary to meet customer demand.

c) Cut non-essential expenses: Evaluate your business expenses and identify areas where you can make cuts. Consider eliminating unnecessary subscriptions, reducing travel expenses, or finding more cost-effective alternatives for essential services.

3. Improve cash flow forecasting

Accurate cash flow forecasting enables you to anticipate and plan for future cash needs. By understanding your cash flow patterns, you can make informed decisions and take proactive measures to avoid potential cash flow shortages.

Consider the following tips to improve your cash flow forecasting:

a) Analyze historical data: Review past cash flow statements to identify trends and patterns. This analysis will help you forecast future cash flows more accurately.

b) Consider different scenarios: Anticipate potential changes in your business environment and factor them into your projections. This will enable you to prepare for different outcomes and make necessary adjustments in advance.

c) Utilize cash flow management tools: Leverage technology to automate and streamline your cash flow management. There are various software solutions available that can help you track and project cash flows more efficiently.

By implementing these strategies, you can enhance your cash flow, navigate financial challenges, and position your business for long-term success.

3 Tips On How Manage Your Small Business Cash Flow

There are times in the life of your business when mainstream finance options like loans and credits will be inadequate for your needs or beyond your reach. One option that may be available to you at a time like this is to consider accounts receivable financing as an alternative way of getting the cash that you need to run your business.

What, you may ask, is accounts receivable financing? Sometimes, accounts receivable financing is referred to as factoring. Accounts receivable financing may be simply defined as a process whereby you sell the outstanding invoices for products or services already delivered by your business (otherwise known as receivables) to a financial institution (bank, finance house, etc.). Usually, it is sold at a price that is lower than the value of the invoices.

By this transaction, your business transfers ownership of the invoices to the financial institution. The institution then pays the discounted value of the invoices to your business. The deal occurs as negotiated and agreed in accordance with the quality and age of the invoices. Thereafter, it becomes the responsibility of the financial institution to get paid for what had been your invoices or receivables.

Accounts receivable financing works on the premise that your business has valuable assets (invoices) that can be financed. Based on this, the financial institution advances money to your business, for the slow-paying invoices of your business. Then, it waits for your customers to pay to it, and charges a small fee for this service.

Accounts receivable financing offers a source of immediate cash flow to enhance the growth of your business. It is collateral-free finance, unsecured, and does not require a pledge of assets or provision of guarantors.

Also, the speed of accessing cash for your business is mitigated by the cost that comes with discounting your invoices. Howbeit, this could be substantial over time.

In spite of this shortcoming, your business requires cash flow to support its various daily operations. Access to credit is usually tight, and traditional lenders are usually unwilling to help. Hence, accounts receivable financing can help your business in overcoming these financial challenges.

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If your company does business with big companies, conglomerates and government, you know that they take their time in settling your invoices. Certainly, you suffer the agonies and frustrations of waiting for so long to get your invoices paid.

True. They get to pay. But they take their time and your time. They don’t care about your immediate challenges or about your suppliers that must be paid now. Neither do they care about the payroll that must be met at month end!

It is often a paradox of business that while your biggest customers may be your biggest assets; they can also be your biggest liability if they do not settle their invoices as and when due. Because your business incurs fixed and variable costs in regularly providing products and/or services to these customers, and the customers do not reciprocate equally in settling their invoices, they put your business in a position where it is constantly mismatching its expenditures and incomes, with the former always running ahead of the latter.

In this situation, you must find a way to bridge the financing gap. If you are the typical Small Business Owner who cannot go to a bank for a business loan, accounts receivable financing can give your business the money it needs, by unlocking monies in your slow-paying invoices. The key requirement for embracing this option is to have credit-worthy customers.

So, if your business is choke-full with credit-worthy, but slow-paying customers, one solution available to you is to finance your accounts receivables. It will provide the cash to pay your suppliers, Even more, it will help pay salaries and meet your assorted financial obligations. Also, it will minimise if it does not eliminate, your financial worries. It will give you the peace of mind to run and grow your business.

While a receivable financing arrangement is not a loan, it is important to back it with a written and executed agreement that spells out terms like the discount rate, the start or end date(s) if it covers multiple invoices over a period, when the business gets paid, etc.

Want to improve the cash flow of your small business? Contact Mr Ted Iwere today!!!

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