3 Ways To Improve Cash Flow

cash flow tips

3 Ways To Improve Cash Flow

Cash flow can be more important than employees, customers, revenues, mission statements or catchy slogans. Take cash flowing through a businesses veins away, and it will die – quickly. Here are 3 tips that have been effective over the years to improve cash-flow in a business.

Create A Cash Budget For Your Business.

It is hard to improve if you don’t know where you’re at. Don’t fly blind. If you’re serious about your business and its success, then using historical data you can take a rough guess at what you’ll need in the way of working capital for the coming month.

Don’t get too tied up in how accurate this is at the moment. You can improve the accuracy of the data moving forward as you get more data. If you don’t feel confident in creating a cash budget for your business, then get your bookkeeper or accountant to help you out. It’ll be well worth your trouble.

Over time your cash budget will allow you to predict how much working capital is needed, and when, to keep your business on a steady course.

Without this tool (cash flow budget) you may buy a piece of equipment or allocate funds for some purpose only to find that an unexpected bill arises. You could find yourself without the cash in the bank or available overdraft facilities to handle these unexpected expenses.

If you look back at your historical financial figures you may find that some of these big financial outlays have occurred in the past and could have been projected forward.

Forewarned is forearmed, as the saying goes. Knowing what your cash position is on a daily basis, and for the coming month, will give you not only a sense of control but peace of mind.

Have A Documented Process For Collecting Receivables

Put in place a step-by-step process which you will follow in chasing up monies that are owing to you. This process may consist of some simple steps that can actually improve how quickly your debtors respond to your request for payment.

It can be as simple as five or six activities that will be triggered based on the various stages in debt collection:

  • A friendly reminder phone call to the debtor a few days after the debt is due
  • A phone call or email sent within a week of the debt becoming overdue
  • A letter sent three days after the previous phone call, requesting payment
  •  A phone call to point out the debt is overdue and requesting payment
  • Another more strongly worded letter sent after the previous phone call if no payment received
  • Letter sent requesting payment (sometimes arrangements are offered that allow for partial payment)

Of course if the debt has been outstanding for 60 days after expected payment, a notice that the matter is in the hands of a debt collector may be sent.

Reduce Invoicing Delays

Eliminate delays in invoicing – get them in the mail as soon as possible or email them. You can cut up to a week off each end of the debt collection process purely by electronically delivering the invoice, and ensuring that it is easy for your debtor to pay. By easy to pay, I mean direct payment into your bank account rather than accepting payment by cheque.

Some businesses may be in a position to do progressive payments or instalments and invoice for each instalment over a period of time. Either way there is always a gap between when the service or product is delivered and actual payment arrives into your bank account. This is a gap or cash flow void that you have to plan for and fund  to ensure that you can continue to be in business.

About the Author Brian

Brian helps small business owners win back their time, passion and performance utilizing a proven step by step blueprint for success. A coach and consultant for over 10 years specializing in business growth strategies.