Better Manage Your Cash Flow: Top Ten Tips
Cash flow, the movement of cash into or out of your business, is key to the success of any small business. Cash flow issues, such as not having enough money on hand to pay your bills, can cause serious repercussions for any type of business. Follow the tips listed below to better manage your cash flow:
Always conduct a credit check on prospective customers
Set realistic credit limits for your customers and aim to do business with creditworthy companies that have good track records for bill payments.
Set out your terms and conditions
Whether your business terms are seven days or 30 days, make sure your customers and clients are clear about this from the start. Include your terms with all order confirmations and invoices.
Always check your invoices
Avoid having invoices be returned or delayed by addressing them to the proper department and a named individual if possible. Include details of the job, a purchase order number, the correct amount, your business terms, and a date. Issue invoices immediately on completion of a job and follow up with a phone call.
Don't be afraid to adopt a follow-up system for credit control
Call your customers if payments are late and issue statements and reminder invoices. Be alert to possible problems if customers become difficult to get hold of.
Manage your suppliers
You could get a better deal if you shop around and negotiate longer credit terms and volume discounts with your suppliers. This gives you more breathing room and spare cash to reinvest in your business.
Keep your records in order
Keep a record of all payments, bank statements, and bills. Bookkeeping may be mundane, but it is essential to keep track of the cash that is going in and out of the business. You may find it easier to computerize your accounts, a variety of software packages are available to help you to do this. Make sure, look for an easy-to-use solution that does not require accounting know how and meets Canadian small business needs. Alternatively (or additionally) employ a professional accountant or bookkeeper.
Shop around for your banking needs
Main-street banks do not always offer the best rates and services for smaller businesses. So much competition exists among banks at the moment that you can afford to take your business elsewhere. Work out your specific needs and compare the different bank offerings and charges that work for your company.
Don't hold too much inventory
Holding more inventory than you need costs your business money, so plan ahead and be aware of customer buying patterns. It may be possible to arrange more frequent deliveries from your suppliers, so that stock levels can be kept to a minimum.
Think about alternative ways of increasing cash flow
Banks and loan companies are not the only ones who can offer financial assistance. An alternative might be equity finance, which involves giving up shares in the company. For some sectors and businesses, grants or special-rate deals may be available. Another option may be the sale and leaseback of assets.
Remember to keep everyone, including your bank, suppliers, and customers, up-to-date. Tackle cash-flow issues early on so that they don't develop into bigger problems later.
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