Turn Cash Flow Struggles Into Growth Opportunities with These 9 Tips

Cash flow is one of the biggest concerns of all business owners, large or small. Unexpected changes, low profits, late payment of customers and other factors can cause major cash flow problems for many.

Small business owners are likely to be hit hardest. When cash flow troubles come, they may not have enough cash reserves to tap into and keep the business afloat. That’s why managing cash in-flows and out-flows is a very crucial aspect of running a business.

Following are nine tips to improve your cash flow and avoid serious financial setbacks down the line.

1. Bill your clients regularly

By billing your customers on a regular basis, the cash in-flows will be more consistent.

Customers see the value of your product or service at the time it is delivered. As time goes by, the perceived value of the product or service is diminished.

Take advantage of the fact that customers are more willing to pay for your product or service at the time they have a need for it. You’d be surprised that they are more willing to accept your offer at a higher price.

2. Implement systems to follow up debtors regularly

Chasing outstanding debts is usually dreaded by most business owners. But it’s one of the most important aspects of maintaining positive cash flow.

Develop procedures to minimise the number of days debtors remain outstanding.

You could offer a discount for early payment, send friendly reminder letters when debts are overdue or follow up with a phone call at a later date.

3. Make it simple for a customer to pay

Offer alternative methods of payment, such as EFTPOS & Credit Card facilities, accepting direct deposits, as well as cheques and cash so customers can conveniently pay.

Further, if your customers offer payment, and you know how much to charge them, do not turn down the offer. They are clearly willing to pay you there and then.

If you turn down the payment and ask them to pay at a later date, you are risking the possibility of a delayed payment, or no payment at all.

4. Seek upfront deposits/retainers

Before commencing large contracts or ongoing service arrangements, seek an upfront deposit.

This will assist with your cash flow at the start of the project and also ensure your customer is committed to your product or service. As the assignment or project progresses, ensure you invoice progress claims.

By invoicing in regular smaller amounts, it is easier for your customer to find the funds to pay your bill, hence improving the cash flow for both you and your customer.

5. Adopt regular payment arrangements for recurring expenses

It is much easier to find $200 a month than $2,400 in a lump sum amount when it comes time to pay for your annual fees.

Many suppliers offer “pay by the month” alternatives because it helps their cash flow as well as yours.

Expenses you may consider paying on a monthly basis are:

  • Insurance
  • Licences & subscription fees
  • Professional fees – accounting, legal & other consulting fees
  • Superannuation

6. Inventory Control

Monitor stock levels carefully. A stock which sits on the shelf for long periods of time is costing you money.

This is because you’ve made the cash outlay on the purchase and are waiting for the cash inflow from the sale.

Implement an inventory control system where stock items are purchased on an ‘as needed basis’ to try and minimise the length of time the stock is gathering dust on the shelf.

7. Undertake credit checks

For large sales, seek references from your customers about other suppliers they use. Call them to run a background check and confirm they have a good payment history.

If the feedback received is negative, consider asking upfront payment, or turning the sale down.

A sale with no payment effectively means no sale at all. Or it could only cost you time and money chasing the outstanding debt.

8. Communicate

Be sure to communicate your payment terms with customers at the time of sale. This way, customers are aware of your expectations for payment.

Also, if you are having difficulties meeting your supplier payments, speak to them in advance. This will help maintain good supplier relations.

Remember, communication is key.

9. Prepare a cash flow budget

A budget is vital for monitoring the cash flow of your business. Prepare an estimate of the monthly cash inflows and outflows, and compare the budgeted figures with the actual flow of funds.

A cash flow budget should be prepared yearly, and adjustments should be made according to changes in anticipated cash receipts and payments as they arise throughout the year.

When preparing your budget, consider the following:

  • A sale doesn’t necessarily equal a cash inflow. You need to allow for the time difference in making the sale and receiving payment.
  • Allow for seasonal fluctuations, and the effect of holiday periods such as Christmas and New Year.

Without positive cash flow, even the most successful of businesses can fail so give these cash flow management tips a try. When you do, let us know. I always love hearing stories about small business owners who turn their struggles into success.