In this article, we will be discussing a topic that to many may seem rather straightforward. Cash-flow. Maintaining a well-balanced cash flow is essential to any business from the early stages to running a mature and growing business. What is cash flow? “Cash inflow is the lifeblood of your business.” Inflow is money the company is receiving from sales, loans or investment capital while outflow is the expenses like salaries, inventory and other operating expenses. Managing late payments effectively will help business maintain a healthy cash flow.
Maintaining Healthy Cash Flow
Some tips for maintaining healthy, positive cash flow is first and foremost understand that cash flow has two main drivers’ organisation and planning.
Managing Cash In Flow
Companies of any size can see their cash flow impacted by a significant number of late payers. However, late payments can particularly harm SMEs, causing them to run out of cash. With the fierce competition, SMEs are forced to accept late payments without charging any additional fees. In order to improve your incoming cash flow, you can use three simple techniques.
- Always issue invoices on a timely manner and follow up on them regularly. While this may sound simple many companies don’t follow it. Collecting your receivables is an important part of cash flow management, many times your customers have the funds available but simply need a reminder. SME’s have the advantage to deal with clients personally and can therefore confirm receipt of the invoice as well as approach clients in a timely fashion to ensure timely payments.
- Incentivise customers to pay early by offering a small discount for early payments. Cash that comes in sooner can help fund other company activities.
- Lastly, for long term projects, its important to structure payments with an upfront deposit or schedule payment intervals through the lifetime of the project.
All these techniques will ensure you are not struggling to pay your bills on time.
Managing Cash Out Flow
Paying your bills on time is just as important for any business. And it is crucial to do so in a timely manner for many reason like establishing trust with your creditors and building a strong credit history. We will be sharing some of the ways to optimise paying your bills. While some people choose to write a check exactly the day they receive the invoice, it is a better strategy to use payment terms to its fullest.
Why is this so? This enables you to have a better idea of what your cash flow actually looks like. The caveat to this is when discounts are offered for early payments. Take advantage of those as they represent bigger profit margin on sales. It is important to facilitate processes using technology. Electronic Funds Transfer (ETF) payments are one way you can ensure consistency with payments. This allows you to schedule recurring payments by electronic transfer of money from one bank account to another.
Lastly, inquire about flexible payments as this might be available. However, be cautious and treat this in a case by case scenario as this could send the wrong message with suppliers.
Managing Late Payments via Fast Financing
All these tips will prevent you from undergoing a cash crush in lean months. It is important to stay conservative and plan for the unknown as there can often be a lag between the sales and receipt of the payment. Having enough cash reserves to continue to pay your bills will allow you to keep running your business as usual when the flow is lagging. Estimated coverage is up to you to decide from three months to a year. If you do ever find yourself in need for quick cash flow, online platforms like InvoiceInterchange offer quick invoice financing to manage late payments, helping you smoothen you cash flow cycle.
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