If cash is, indeed, king, then having great cash flow is like ruling the world. Having all the money in the world is of no consequence if you can’t access it or use it. That’s like looking at fish in an aquarium – pretty, but pretty useless. Profit alone is not a strong indicator of success and certainly not of a company’s future success or growth. However, having uninterrupted and unlimited cash flow promotes real and long lasting growth and stability.
So, if you wish to improve your cash flow, we’ve offered some guidelines to help make it happen
1. Understand what is written on your invoices and monitor your accounts receivables weekly. Knowing when payment is due is critical.
2. Collect all payments on time. Get the money owed you! No money, no business. Kindness is not a virtue here.
3. Learn how to negotiate. Offer your customers a small discount in exchange for early payment. Quite possibly your own supplier might give you a discount too if you are able to pay your bill earlier. It’s win-win for everyone.
4. Maintain good customer relations. Staying in touch with your clients on a regular basis is a simple, yet effective, way of ensuring they continue to do business with you and not run elsewhere. This, also, gives you the opportunity to assess and respond to their needs specifically. Nothing like the personal touch!
5. Stay alert! Keep an eye on your customers’ credit rating. Much can change from that initial credit check that you did (you did do one, right?). Your customers’ credit status should be monitored at least annually. We live in uncertain times and there are businesses out there that try to survive on a wing and a prayer—not a best business practice! If you see bad credit, collect what you can and run!
6. Make sure your eyes are not bigger than your stomach. It might be a boost to your ego to deal with large companies but if you don’t have enough cash flow to complete those orders or they don’t pay you on time, well then, GULP! you just swallowed a whole pizza with all the fixings and the cramps are horrible! It’s all about the cash flow!
7. Proper financing is key. An Invoice Factoring facility can be the perfect solution for generating that vital flow of operating money. If the sales are there and your customers have a good credit rating (and you already know they do because you follow rule #5), then the money will flow.
As well, how one finances a business is critical to its success. Oftentimes, entrepreneurs are quite short-sighted about this. Financing, if done smartly, does not have to become a deep well of debt; in fact, additional financing is an excellent opportunity for expansion and can increase the value of your company. Of course, you have to do your homework and make an informed choice. A little preparation will go a long way. Don’t be afraid of it, be smart about it.
Remember that there are a variety of options available when it comes to financing your business. Traditional loans through a bank are not always the right solution due to their more complicated approval process. Alternative options such as Invoice Factoring, Asset-Based Loans, and Purchase Order Financing can provide working capital and lines of credit to companies with sufficient assets, purchase orders, and customers who pay on time. So take a good look around, talk to various lenders, and come up with a sound business plan that will lead to long-term success for you.
A final thought: Think carefully, prepare thoroughly, and manage effectively.