https://www.globalbankingandfinance.com/what-is-accounts-receivables-on-the-balance-sheet/Successfully managing your cash flow is your core purpose as an entrepreneur. If you maintain a positive cash flow, you’re doing good business. However, nothing lasts forever. Even the best companies sometimes get out of sync with their beat.
Often, it might not even be your fault. Business is an ecosystem. An event into the other side of the country or even city can disrupt your flow and throw you off balance.
For such an occasion, here are 25 ways you can help improve your cash flow and continue with business as usual.
Managing your accounts receivables:
- Send out your invoices as soon as possible
One of the biggest problems you’ll face is invoices being paid with delays. For that reason, you should always prepare them as your work goes by. Send them the minute your product or service is completed and collected.
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- Chase your unpaid invoices
Always keep track of your unpaid invoices. Make the best effort to continuously chase your debtors and remind them to pay in time. It’s alright to pressure your clients if they overextend their payment period.
- Schedule step payments for long lasting contracts
If work on a long contract, or deliver a big shipment, try to negotiate step payments throughout the course. This will enable you to access your funds as you need them and maintain your business operations.
- Offer discounts for a quick repayment
Making discounts might sound like a counter-intuitive thing to do. But just consider how late payments will affect your cash flow. Most of the times a stagnated cash flow will result in either lost money or lost opportunities to earn money. Thus, making a small discount might actually even save you funds.
- Introduce an interest for late payers
Often, you’re able to include a penalty clause in your contracts with your clients. Whenever they overextend their payment period , you will gain interest on your earnings. These are rather rarely enforceable. However, having it on paper will create a passive pressure for your clients to pay in reasonable time.
- Use an invoice finance company
If you have no quick way to access your account receivables, you can always turn to a factoring company. This is a way to receive funding based on your unpaid invoices. You will pay a small fee on your total earnings, but you will gain 70%-90% of your invoice values in 24 hours. Thus, you should have enough money to continue your operations.
Manage your outgoing payments:
- Schedule step payments for big purchases
If buy a big stack of materials or hire sub-contractors, making a big payment might dry you out of working capital. Try to negotiate a step payment plan with your vendors. Most of the time they won’t object if they are receiving scheduled repayments.
- Negotiate billing dates to coincide with revenue payments
Sometimes your earnings arrive just a few days late to meet and cover your own business expenses. Usually, you can foresee such discrepancies. Negotiate a billing date with your vendor that will factor the date your funds arrive.
- Research better prices or deals for your most common purchases
Your cash flow problems can be simply because you buy from the wrong supplier. You might pay unnecessary high prices for your stock. Research your supplier options. Find out if you’re not driving yourself out of business.
- Negotiate discounts from your vendors:
If you have a good relationship with your vendors, perhaps you can use that to nudge their prices a bit. Perhaps, you might negotiate yourself a discount for regularly paying early. Or, you might offer them a payment in cash for a slightly reduced price. Cash payments are always more valuable than other types of funds.
- Make “on time” payments to avoid suffering interest
Plug out potential funds sinkholes by continuously repay all your debts. Mortgages, business loans and credit cards should be repaid in the order of closing out the smallest debt first. If relatively equal, target the one with the highest interest rate.
Managing your existing funds:
- Keep working capital in an interest-bearing account
You can store your working funds into a checking account that grants a small interest for you. There is often a requirement for minimum balance at most banks. But, with careful moderation, the interest can offset some processing costs throughout the year.
- Keep an emergency fund at a hand’s reach
Emergencies tend to occur when you’re least capable of handling them. When they do, you’d better be prepared to dish out a chunk of cash. This way your business can continue operations and you can work to recover those. Otherwise, you’re faced with having to withdraw emergency loans with huge interest rates.
- Avoid large, long-term savings accounts
If you put most of your capital into long-term saving accounts, you will receive the most merit out of your funds. Yet, if something happens and you need them to cover up some business costs, you have a problem. Most good interest accounts have penalties for breaking the term. First, you lose all your accumulated interest. Then you’re likely to suffer real financial loss in the face of penalty interest.
- Avoid loans if you’re barely meeting business ends
If you’re barely on top of your cash flow, it’s a bad idea to take on a loan, unless absolutely mandatory. If something bad happens (and, at some point, it will) you’re going to have a rough time. A loan will help drain your balance. Unless you find a way to inject funds into your business you might go into bankruptcy.
Managing your business assets:
- Rent out unused operational space
Maintenance for your empty warehouses might not be much, but it’s still coming out of your pocket. If you plan on using them again soon, just rent them out for profit. Otherwise just put them on the market and channel your cash somewhere else.
- Liquidate unused or dated equipment and vehicles
Dorman equipment that doesn’t meet your business requirements anymore should be sold or salvaged. If you’ve outgrown your old vehicles or machines, you should release their capital. Use that to fund your upgrades or just add to your savings. In any case, unused assets require storage and maintenance, while they don’t generate profit.
- Balance your excess of stock and raw materials
It’s often difficult to judge how much raw materials you need for your production. Sometimes, sales might overcome your estimates and you will find yourself in a shortage. Without the materials to continue production, you will lose out on potential sales. Yet, buying more than you can put to use can be even worse. Excess stock quickly loses its value. It might even become obsolete by the time you’re able to effectively use them.
- Sell inventory you can’t use effectively
When you own stock you can’t or won’t use for whatever reason, find a way to sell them as fast as possible. The price of any equipment and material in stock can only go down. Sell them while they still have decent prices, before they become obsolete and worthless.
- Optimize inventory and storage
If you often find yourself with obsolete stock, maybe you should rethink the way you store and use it. Perhaps, a new inventory system can reduce the amount of excesses. Thus, also reduce the size of purchases. Same goes for storage. Maybe you can squeeze your assets effectively and reduce the storage space and save on rent.
- Setup your tax planning as early as possible
Tax can sometimes overwhelm an enterprise that otherwise maintains a good business flow. There are many subtle tricks to minimize your taxes, while maximizing your gains. The most notorious is claiming your business expenses. There are a myriad of expenses that you can claim and reduce your taxable profit.
- Repair and renovate before you buy
Try to make it work with your current equipment. New equipment is expensive and you don’t have time to play on the market. Swapping old for new at a low price is a great deal, but don’t make this your priority. Your priority is to have your equipment working to continue your sales and earn profit. Repairs and proper maintenance gets you there faster.
- Buy used equipment if possible
If you hunt for related businesses in foreclosure or bankruptcy, you can find perfectly good assets for pennies. Even if you don’t, you can almost always get decent machines at fraction of the cost of brand new ones. These can serve you well and last years, without breaking the bank.
- Delay upgrades until your work requires
Tech and vehicle upgrades are overrated. Scrape away the marketing lustro and you will see that new upgrades rarely add enough value as to pay themselves off. Of course, if you do happen to pile severely outdated assets, your own operations might require you to upgrade.
- Don’t forget about salvageable scrap
Do you have old assets laying around that have practically zero market value ? Remember that they are probably still salvageable. Try to identify parts that you can sell separately. Or, you can use in repairing your other vehicles and machines. The rest, you can sell for scrap.
There go our 25. There are many more tips and tricks to achieving a balanced and stable business cash flow. Do you have a trick that works for you ? Have you hacked cash flow management ? Share your knowledge in the comments below !
Factoring Solutions is an independent broker for invoice finance companies and services. We work with business owners and provide free consultation about their factoring needs. Then, we provide a no obligation recommendation to their choice of factoring company.