Improve Your Business’ Cashflow With These 6 Tips
by Mashum Mollah Business Development 29 March 2018
Cashflow is the lifeblood of every business, especially smaller ones. While larger enterprises have access to more lending facilities, smaller companies have a much harder time borrowing money for short-term needs because they are considered a greater risk by lenders. Subsequently, keeping a tight rein on the cashflow of your business is important to avoid hitting a cash crunch and facing perhaps not being able to borrow your way out of the problem.
Here are a few tips to help improve the cashflow of the company.
Better Treasury Management
Managing the existing Treasury with the cash that’s on hand in bank accounts is important so that Treasurers can a full picture of their statement closing balance, and can re-invest any surplus money, rather than have it sitting dormant in their bank account. With companies that find it beneficial to divide their surplus cash between multiple banks to avoid overdraft charges, and for financial security and solvency purposes, using software like BankSense from AccessPay is ideal. The Treasury management software gives that holistic view of all accounts, grouped by currency, location or bank.
Looking for better rates for short-term and overnight Treasury deposits to eke out a small daily gain? Taken over a year though, a marginally better rate on a substantial sum still makes a meaningful difference in helping the cash balance keep better pace with local inflation.
Collect Sales Receipts Faster
It’s easy to let the invoices go out and not chase the payment rigorously. This can get to be the way the firm does it with an accounting team that don’t see the urgency to collect funds quickly. However, cashflow being the lifeblood of a business, this is completely the wrong way to approach it.
The person responsible for collecting the payments must be incentivised with a performance-related pay scheme to get the fastest receipts. Also, look at ways to offer a small discount to companies if they pay sooner.
Do You Accept Debit or Credit Cards?
It is likely that your business is missing out on sales if you don’t already accept payments cards. There are an increasing number of ways to accept Visa, Mastercard and other types of card payments. It’s not always necessary to open a merchant account either. Services like PayPal, Stripe and other providers have options for online customers to pay using cards and receive the funds eventually through a bank transfer.
Be Aware of Seasonal Business Trends
Some companies are largely seasonal and struggle to make payments at the bottom of their business cycle. For your business, you can get caught extending too much credit at a time when your customer is likely to need twice as long to clear the invoice and could run into difficulties paying it if their good seasonal months fail to materialise that year.
It is important to consider when customers are going to be flush and when their cashflow is tight due to seasonality. A decision should be made about payment terms and how much the company should sell to them in months when getting paid, and when, are both up for question. Sales aren’t realised if the company is potentially going to risk losing more than it’ll possibly gain and runs this risk every time that season comes around.
Run Regular Credit Checks
It is important when you run periodic credit checks on the business customers to verify that their financial standing hasn’t changed. Their trading position could have deteriorated since the previous year when they were welcomed as a new customer by the sales team. While the sales staff delight in making a new sale, they often think nothing about the creditworthiness of the customer. That’s someone else’s problem in their mind. It behoves the person responsible to be diligent in this regard.
Encourage Customers to Pay Using the Fastest Method
Look at the options for how each customer can pay your business and arrange with them to select the most expedient method. Where speed is more important when it comes to cashflow vs fees, having a separate discussion with each customer either when taking them on-board or subsequently, helps ensure cleared funds sooner rather than later.
Ensuring that your business has enough cashflow to cover its own expenses is even more important than growth. Growth can go off at a rapid clip, but when operational costs rise steeply ahead of cashflow that is lagging behind, a small business can quickly find itself in a cash crunch. Only access to new forms of credit will get it out from under the cash crunch, but taking on more debt isn’t always ideal either.