To say that cash flow is important for any business is simply and understatement. Cash is what keeps your doors open, your lenders happy, and your employees from going on strike. Cash flow is ultimately what your investors want to see, and is what gives your business life. Here are 10 ways that you can increase your cash flow today:
- Pay with credit card instead of cash – You can delay cash disbursements by 30 days or more if you simply pay by credit card instead of cash.
- Make monthly payments not annual payments – Vendors may offer you a discount if you pay for 6 months or a year at a time for expenses like insurance payments, website hosting and software costs. But if cash flow is a problem, it would be wise to continue to pay a little bit more each month rather than a large sum up front.
- Negotiate favorable terms with vendors – Do you allow some of your customers to get away with waiting 45+ days to pay? Why do you do that? Is it because you trust them to pay eventually, or they are a large company, so you just have to deal with it? If you allow your customers to push back their payments, maybe your vendors would allow you to push back payment as well. Just ask. You may be surprised that your vendors are willing to work with you to help you manage cash flow.
- Never offer credit in the first place – The easiest way to avoid customers paying late is to never offer credit to them in the first place.
- Perform a credit check on customers – If you do decide to offer credit to customers, you might consider requiring a credit check on all potential customers.
- Manage inventory efficiently – It takes cash to buy inventory. If you are cash poor, the last thing you want to do is tie up cash in inventory that is just sitting around. Implement a “just in time” inventory mentality, so that your cash can be put to good use, rather than sitting for months at a time tied up in excess inventory.
- Offer discounts for cash payment – Cash is as liquid as you can get. If you are worried about cash flow, then offer discounts for customers who pay with cash. This also allows you to avoid those pesky credit card fees as well.
- Stay on top of late customers – You need a process for staying on top of delinquent accounts. Don’t let customers get away with paying 3 days late, then 5, days late, then 12 days late. You need to have a policy and stick to it.
- Find a partner interested in profits – You might be able to find a partner who is cash flow rich, but wants to increase profits. You might be able to cut them in on the profits of your deals in exchange for cash as needed.
- Offer easy payment options – If you want to get paid on time or even early, then make it as easy as possible for customers to pay you. Ask them what the easiest way for them to pay is, and make it happen.
The best way to manage cash flow is to set these policies in place right from day 1. If you want to stop worrying about whether or not you can make payroll next week, then implement these 10 tips and turn your business into a cash flow machine.
About the Author: Adam Hoeksema is the Founder of ExecuitvePlan which helps entrepreneurs write powerful business plan executive summary in order to raise capital. Adam is also the author of “How to Create Financial Projections: A Step-by-Step Guide for Startups”