. If you don’t have it, your business can’t grow. But, getting your business’ cash flow organized can sometimes be harder than it seems. When the cash that’s coming in and the cash that’s going out don’t balance you find yourself in a cash flow gap which can be hard to climb out of.
A cash flow gap is a very common problem for new or small businesses which balance from day to day on the receivables and invoices. Each expense, no matter if it’s inventory or services, have to be paid for before you can get paid. This can create a problem if you don’t have the cash flow to support these gaps in payment. So, how do you manage your business’ cash flow so you can begin to pull yourself out of this slump?
Here are a few tips and ideas to help you:
• Keep a tight reign on bookkeeping and your cash flow. Know everything that comes in and out so you can start to predict when cash flow problems might arise and how you can fix them before they get out of hand. A great way to keep an eye on your business’ cash flow is to balance your business’ books at the end of each month.
• If your business allows customers to be billed for your services or products, then make sure that you have an invoice ready when their items are delivered. This way, you don’t add to the time that they have to pay the invoice if they are on a net-30, 60, or 90.
• Keep an eye on customer’s credit lines with your business and when you start to see problems with an account, cut their credit line back to help prevent a large loss. This is a great way to see which customers are paying on time, and which you need to work on.
• Provide an incentive for customers who pay their invoices on time, such as a 2-5% discount off their entire order if they pay before the 30 day mark. This will help your invoices get paid faster, since most customers will want to get that discount, no matter how small it is.
• If you provide services, develop a deposit policy to help cut down on up-front expenses. By placing a deposit on your services, you already recoup some of your costs, and your customers aren’t as likely to not pay the invoice since they have already put out part of the total up front.
• Hire a good credit and collections person(s). Having someone who knows how to handle credits and collection issues will also help to cut down on overdue invoices and missed payments. Almost all the business accounting software out there today offers a report function that will show you who is late on account payments so you can easily call or mail a letter to them right away. You do need to have a clear path that you will take when it comes to collections so you will know how to handle an account that just won’t pay.
If you find that you are constantly short each month, or that customers aren’t purchasing as much as normal, look into your pricing or other areas where there could be problems with your business. Make sure that you are advertising directly and indirectly so you can keep old customers and gain new ones to keep your cash flow from going into the negative.