Back September 28, 2016

How to Improve the Cashing In

If the sales are the muscles of business, cash flow is for sure its lifeblood. Yet still, many business owners seem to lose sight of this important matter and they slowly stop taking care of it. Yes, cash flow is one of the causes that lead a small business to failure. And to sleep deprivation. So, how do you solve your cash flow problems?

First, you have to realise that the problem is with the way of handling the company finances. Once you accept this, you have to focus on solving the problem. It sounds easy, right? Speeding up the flow – converting sales into cash as soon as possible – sounds like the right idea, but how do you do it?

It is important to remember that cash flow isn’t profit, and profit isn’t cash flow. Because you can have tons of profit, but no cash sitting in your bank account.

Here are some ideas to give a boost to the cashing in.

Improving Receivables

Well, let’s put it this way: if you got the money the instant you made a sale, your cash flow troubles were over, right? Unfortunately, that doesn’t happen often in real life. You can, however, still improve the speed with which you turn receivables into cash.  For that you could:

  • ask your best customers to accelerate payments and offer discounts to customers who pay their bills rapidly
  • ask customers to make deposit payments at the time orders are taken
  • require credit checks on all new non-cash customers
  • issue invoices promptly and follow up immediately if payments are slow in coming; if you are late to send an invoice, the fault is yours and yours only.

Customers may be late at paying anyway, so if you are slow to send the bill in the first place, high chances are that you end up months behind on collecting receivables. Instituting a policy of cash on delivery (c.o.d.) is an alternative to refusing to do business with slow-paying customers. This way, you can avoid slow-paying customers.

Best case, likely case and worst case scenarios

You have to understand that cash flow plans are not glimpses into the future. They are educated guesses that balance a number of factors, including your customers’ payment histories, your own thoroughness at identifying upcoming expenditures, and your vendors’ patience. Don’t just assume, without justification, that receivables will continue coming in at the same rate they have recently or that payables can be extended as far as they have in the past and so on. You should put contingencies in place: use the ‘if then’ planning approach.

The ideal scenario is to have as much income as possible on contracted or recurring terms, with that revenue covering most your fixed cost base.

Stay one step ahead with technology

New technology enables better cash flow management. Online and cloud-based accounting systems make it simpler for business owners to get real-time visibility of their cash, and reduce the time it takes to proactively manage and forecast cash flow. So make the most of these tools (like ThinkOut, for instance).

Upfront payment options and progress invoicing can help you bring your cash flow forward.

Remember that phrase “ready, willing, and able”? When it comes to cash flow management, you have to be ready and able. But you know what? It’s the willing part that needs hard work and commitment.