Five Steps That Improve Small Business Cash Flow
by Joseph Lizio - Business Money Today - June 22, 2009
Cash Flow is the flow of actual money (cash) in and out of your business. It does not including accounting items like depreciation or transaction items like sales via accounts receivables or payables. Cash flow (the balance in your business checking account) is the stuff that is used to pay bills, meet payroll, expand businesses or take profit.
The following are five (5) ways that you can improve your business's cash flow:
Account Receivable Collections: If you have customers that are constantly paying late - try to find ways to improve your collection efforts. This could be sending out notices earlier about payment dates and amounts. Calling customer accounts payables departments or managers directly instead of sending out written notices. Or, sending reminders of payment due dates and the penalties of late payments (outlining and stressing the penalties) more often to ensure timely payments of accounts. If you don't have penalties for late payment - this is a good time to put them in place - make them significant and highlight them on your invoices and when dealing with new businesses.
Offering Payment Discounts: Offer customers discounts for paying early or paying in cash. This not only helps speed up and improve your cash flow but can also benefit your customers - keeping then loyal to your business.
Vendors Discounts: Just like offering early payment discounts - take advantage of the discounts offered by your vendors or suppliers. While this might mean that cash is flowing out of your business sooner than before - it could also mean that less cash is flowing out - savings of 10% to 20% on your business purchases. If this is not an option for your business, you can negotiate with your supplier and vendors to extend longer payment terms. This can give your business more time to collect from your own customers before payment is due to your suppliers and vendors.
Up Sale or Cross Sale: Understand that it is more profitable and less expensive to sale to existing customers than it is to acquire new customers. Know that informing existing customers of other products and service you offer or explaining the benefits of your premium product and service not only can help you improve your cash flow but can also benefit your customers as they may be unaware that you have other offerings that can improve their lives or business.
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Using Credit Cards: The key here is using the billing cycle and grace period to delay payment. Now, this will only really work if you can and will pay off your balances at the end of each cycle. Let's say that your billing cycle runs from the 15th of each month. Thus, your credit card company will take all charges between the 15th of the previous month and the 15th of the current month - combine those into your bill - then give you a grace period of up to 25 days to make the payment - without interest or penalty (this does not work with cash advances). Thus, if you make purchases early in your billing cycle, you could delay payment on those purchases for up to 50 days or more - essentially creating your own payment terms.
Lastly, as a bonus method of improving your business's cash flow - you can raise prices. Just be aware that you should only do so if your competitions' prices are higher than yours. You do not want to drive away your current customers especially if you are considered the low cost provider.
These are methods that can really make a significant and positive impact on your business and your profits. These are methods that can be used in any economy - good or bad.
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Five Steps That Improve Small Business Cash Flow - Business Money Today