Cash flow is often said to be the lifeblood of a business and it is no exaggeration, as a positive can help it not only pay expenses, but look for ways to invest and help a business grow and prosper. Thus, it becomes important that such an aspect of a company, is managed effectively and to produce the best results possible.
There are a lot of small businesses out there that do not follow some of the basic procedures in maintaining a healthy cash flow; something that larger businesses do so religiously and is evident from their rise from small beginnings to a sizeable enterprise. Thus, small business can learn from their bigger counterparts, how to better manage cash and avoid making such mistakes in doing so. Mentioned below are a few of those tips:
Ensure space in between payments
One of the most important steps in ensuring a good cash flow, is making sure that you do not pay all your bills at the same time, as this would negatively impact your income, resulting in unsatisfied creditors or suppliers or not having the resources to pay for an emergency. You should also negotiate with the vendors for an extended period of making payments, while also prioritizing rent or payroll payments and other important bills, to be paid before all others. However, some vendors also offer discounts if you can make payments earlier and maybe you can use those to your advantage.
Quickly collecting your payments
As with making payments early, you too can offer discounts to people for making their payments as early as possible. Another technique for collecting payments early, is to offer options to make payments online or explore other ways that are now available to businesses to do so, thanks to advancement in technology. An example of this could be electronic billing, which automatically sends reminders to customers for making payments and other benefits.
Create and follow a strict policy for credit
Businesses tend to operate on credit quite often, but it is important that they have a strict policy in place. Small businesses can seldom afford to have customers that have outstanding credit for long periods. Thus, a set of standards that can help shortlist clients eligible for credit should be introduced and then they need to be strongly enforced. Another step you can take, is to perform a credit check for fresh customers, before offering them any and offer payment plans to those who are late in making their payments.
Be prepared for shortages of cash
It is natural in a business to see cash flows vary and be altered by expenses that you did not expect, even for a business that has been in the running for long. Thus, an emergency fund that contains operating expenses for a few months or half a year should be kept in reserve, so that a bad cash flow period does lesser damage. Businesses often pay for everyday expenses with credit cards, which is something small businesses can take advantage of.