Some Ways to Increase Your Cash Inflow
Cash flow is one of the most vital metrics for small businesses. It measures how much money comes in from sales and leaves to pay vendors, employees, and other items. If your cash flow is negative, it means you’re spending more money than you have coming in, a thing that cannot continue for long.
A healthy business has a positive cash flow – that is, it produces excess cash from operating income that can be reinvested in the business or paid back as dividends to shareholders. Small businesses with little access to financing may struggle with liquidity , which refers to having enough cash at any given moment to meet expenses and payroll obligations, something that plays on the mind of lots of business owners.
If your company is running low on capital or has trouble managing its finances and payments, you need to take steps quickly. Here are some ideas on how you can improve your cash flow so you don’t run out of money before the end of each month.
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Collect unpaid invoices immediately
If your business provides goods or services on credit, you’ll probably collect most of your payments relatively quickly. However, an unpaid invoice is a signal that your customer could have their own cash flow problems, if that is it’s been more than 30 days since your customer got the bill.
When this figure reaches 60 days, you need to act immediately, unless you have agreed such a long term, to collect the payment. If you’re dealing with a large customer that’s late on payments, you may want to employ a collections agency. If you’re dealing with an individual client who is behind on payments, try to get in contact with them as soon as you know about the situation.
Inform your client politely that the payment is due immediately and that you would have to take legal action if the monies are not paid in full. Be polite, but don’t give the client any false hope or false promises. Let the client know that you just want to be paid so that everyone can move on with their lives.
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Adjust your payables and receivables
At the same time that you’re collecting payments from clients who owe you money, you should also be adjusting your payables and receivables. You should look at ways to decrease the amount you’re paying to vendors and subcontractors. Negotiate prices with your suppliers and push back on any payment terms that seem unreasonable. If you’re having trouble collecting from clients, try extending your own payment terms to give yourself some breathing room.
Find the cause of your cash flow problem
First and foremost, you need to determine the cause of your cash flow problem. Is your business growing quickly and just needs a little more time to catch up? Or is your business not bringing in enough revenue to stay afloat? If your business is growing too quickly, you may have trouble keeping up with demand and collecting payment from clients. You’d be surprised at the number of businesses that simply grow too fast.
If your business isn’t growing, you need to determine the reason and take action immediately, and if your cash flow problems are due to a lack of sales, you’ll need to do some serious marketing.
On the other hand, if your cash flow problems are due to too much growth, you may need to get some help from the bank. You could lay some employees off, but that will not help you deliver your products and hiring additional staff to help manage growth will only cost you more.
Adopt the right payment strategy
You may find that you’re constantly trying to collect payments from clients but having trouble getting paid. You may also find that you’re constantly extending payment terms to clients who are eager to buy from you but don’t have the funds to pay for the goods or services. If you’re having a difficult time collecting payment from clients, you may want to use a payment strategy that helps them and you.
Pay only for what you need
If you have a cash flow problem, there’s a good chance your credit line is at its limit. If you’re using your credit card to fund operations but can’t pay the bill, you’ll hurt your business by increasing your credit card balances. Instead of paying for goods and services that your business does not need, pay for only the items your business truly needs. This may include paying for goods and services with a personal credit card, a line of credit, or a small business loan.
Don’t hesitate to negotiate with vendors
If you’re having a cash flow problem, it’s likely that your vendors have noticed. If you have a lot of outstanding invoices, they’ll be eager to collect payment. Let them know that you would like to negotiate the terms of your contracts. Never hesitate to negotiate with vendors; they don’t want to force you into bankruptcy. Vendors will want their money, but they don’t want to put you out of business, as that way they lose a valuable client themselves, and no one wants to do that.
Consolidate client payments
If you’re having a really serious cash flow problem, you may want to start a client payment consolidation program. This way you get all of your clients to send a single payment each month that covers all of the client’s outstanding payments. This will help you manage your cash flow and give you a little extra time to collect from your clients. Note that this can be a very risky move, since you’ll have no guarantee that you’ll ever be paid in full. You’ll have to be very careful to get written contracts that guarantee the client will make good on the payment arrangement.
Conclusion
A healthy cash flow is crucial to the survival of any business, regardless of industry or size. Small businesses that have limited access to financing may well struggle with liquidity, which refers to having enough money at any given moment to meet expenses and payroll obligations. However, there are steps that can be taken to improve cash flow. Bringing in new customers, managing expenses, and collecting payment on time are some of the most important ways to improve cash flow.
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