For every company, maintaining good cashflow is vitally important. Cashflow refers to money that moves (flows) in and out of the business each month. “Cashflowing” is what successful businesses do; their business models make a profit, so cash flows into the business faster than it flows out of the business. If a company’s cash flow is not good, it will face various difficulties like problems in paying timely salaries, buying new materials, and keeping the doors open. Low cashflow is a concerning issue for many companies, and small businesses are particularly affected by this problem since it limits the options available to remediate the problem.
Consider the following strategies to rapidly increase cashflow if you find yourself in a bind:
1. Motivate Timely Payments From Customers
Most businesses deal with customers paying later than anticipated. Timely payments can improve cashflow dramatically so focus on getting payments on time. For this, bills should be sent immediately after the delivery of services or products and these bills must have a deadline for payment stipulated in your contract for services or delivery of product. A deadline will stimulate customers to pay bills on time because if they don’t do so, they will have to pay fine in the form of late fees or interest. Even small fees make a big difference in payment behavior.
Another way to encourage customers to pay on-time is to offer discounts or free gifts if they pay earlier. It is a fact that everyone loves discounts and free gifts so this step can greatly improve the timeliness of your receivables.
2. Periodically Analyze Terms
If the cashflow of a company is not doing so well, its terms should be analyzed carefully. For good cashflow, it is necessary that supplier’s terms and customer’s terms should be balanced. To find out how these terms are working, a company must keep an eye on the terms offered to the customers and determine that these terms are working for the company or not and how the customers are responding to these terms. If terms are good, they would be elevating perception of the company’s brand higher than competitive companies. If terms are not so beneficial, they need to be changed as soon as possible otherwise they will badly affect the cashflow (and reputation) of the a company.
3. Reduce Fixed Costs
For small business owners it is very important to examine all expenses of the company carefully. These expenses are usually necessary to run a business, but are all of them absolutely needed? If a small business owner wants to run business successfully, it is essential to reduce its company’s fixed costs. These fixed costs can be reduced easily by renegotiating rental agreements or finding a more affordable space, selling equipment with expensive maintenance and outsourcing the function it provides, purchasing more efficient equipment, watching wages carefully, or purchasing products from vendors that offer low prices. Fixed cost reduction will save a huge amount of money that improves cashflow.
4. Use Business Credit Card and Accept Payment Cards
Business credit cards usually offer a grace period for the users and this period should be utilized by the small business owners for their payments to product suppliers and other dealers, not only to ease cashflow concerns but also to establish good business credit. Grace periods can be found out easily by contacting the relevant bank or credit card company, or consulting your monthly statement. Business credits cards have various benefits like rewards points to apply towards discounted travel or purchasing, or cash back rewards!
Also, cashflow can also be improved by accepting payment cards such as credit cards and debit cards as they will let a company to receive next-day value for each service and sale. Accepting these cards will also eliminate the long, irritating procedures of following . Moreover these cards are easy to use in payments at counters as well as online payments.
5. Make It Priority For Staff
The importance of improving cashflow should not only be a concern for the company’s owner. It must be a priority for each and every employee of the company. Good cashflow stemming from solid revenue growth is everyone’s business. A company can design separate revenue or sales goals for workers based on different job functions. For example: suppliers, collectors, writers all should be assigned separate goals relevant to their work. If improving cashflow by doing good work becomes a priority for staff, then the company is more likely to reach its financial goals. Giving a specific target tailored to the strengths of your staff can greatly motivate them to work hard and focus well to actualize their potential.
Every small business can grow to become a big business, but not every business should. Good cashflow is needed whatever the size. Following these strategies can improve a small company’s cashflow quickly and easily which will in turn help grow that business rapidly, benefitting the owners, staff, and their customers all at the same time.
Matthew Koren is the President of Swiftly Paid, a credit card processing and payroll service provider located in Portland, OR. He runs his company, as well as partnering with a consulting practice taking businesses to market in China. You can contact him by filling out the Contact Us page, or by calling 866-402-1485, ext 750.