One of the main reasons why businesses fail is down to problems with cash flow. Even long-established efficient profit-rich enterprises can fall foul of a cash flow crisis, it is not something that is exclusively for businesses in their infancy, which is why, no matter how you are currently faring, you need to put plans in place to ensure that you are not affected. Here are 5 ways to make sure that you do not become a statistic of a cash flow crisis.
It feels counterintuitive to pay more money in the long run for supplies, equipment or fleet vehicles, but it is a way to help with cash flow as you pay smaller increments rather than taking a big hit. Leasing allows you to maintain your money for other areas of the business.
You can’t complain of a cash flow problem if you have not been sending your invoices out to clients and customers in a timely manner. Make sure that you invoice for work undertaken as soon as the job is complete. If you are late sending out an invoice, you are signalling to the client that its ok to be late also. You should have very clear terms of payment on the invoice, and clear consequences for customers that are overdue. If your payment terms are 30 days, you need to have a process whereby you email clients on the 25th day to remind them of the deadline.
Use Electronic Payments
If you have a bill to pay and have the option to pay electronically, it gives you extra days of cash in your bank account as you can pay on the day the bill is due. When it comes to being paid by your customers, you can also use an electronic payment system, especially if they have recurring costs. Subscription payments can be set up with ease with a direct debit option that will ensure that customers banking details are verified on setup, and the money will hit your bank account on an agreed date without having to wait or chase for payment.
Form a Cooperative
Your business may be located on an industrial estate or in serviced offices, in which case you have neighbours that will need the same office supplies that you do; approach them and see if you can unite to form a cooperative to bulk buy your essentials. Suppliers are always open to negotiation for bulk orders.
If you have products that are lingering on your shelves, it is time to check your inventory. The items that are not selling represent dead money. Even if you must sell them at a discounted price, you need to recoup the money. It can be tough accepting that you made the wrong decision about a product’s demand, but chalk it up to experience and learn from the misjudgement.
The main aim of your business is to generate a profit from the goods or services that you provide, but unfortunately, to do that you have to rely on other people honouring their obligation to pay on time; however, there are in-house solutions to enable you to control your cash flow and avoid a crisis.