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3 Tips To Help You Maintain Cash Flow In Your Small Business
When it comes to the management of any business, it is often said that cash is king, and it is true.
Whether your business is flourishing or struggling, managing your cash flow effectively is vital, and for most, it is necessary for the survival of the business.
Many of the companies that fail are still making a profit, but simply run out of cash and are no longer able to operate.
If you have used a lot of your working capital, you may face a liquidity crisis that prevents you from paying vendors, purchasing supplies, and even paying staff wages.
The time lag between the time you have to pay your vendors and the time you receive money from your clients is a problem, and the answer is cash flow management.
This is why it’s important to maintain a level of liquidity that allows you to make it through those difficult times and to continue to run your business.
Put it simply; cash flow management means delaying cash expenditure as long as possible while convincing your clients to pay their invoices as quickly as possible.
Here, we are going to look at some of the things that you can do to manage and maintain a cash flow in your small business.
Short term financing
Short-term lending can be used to make emergency purchases or bridge the gap between payables and receivables.
Many banks will consider issuing credit cards to businesses which can be used to pay your vendors, and paid off once you have been paid.
If this is not an option, you can also look at invoice factoring, where a factoring company takes on the responsibility of collecting payments on your behalf.
They will pay most of the invoice for you, and then when your clients pay, they give you the difference, minus their fee.
Speed up recovery of payments
To avoid late payments, bill your clients as soon as possible and make the invoices as transparent and informative as possible.
Many billing practices, such as the frequency of invoices, may also be worth changing. Instead of waiting until the end of the month, send an invoice as soon as the goods or services are delivered.
It can be easy to lose track of who owes what. Experience shows that the longer you stay out of touch with the client, the less likely you are to reclaim the amount owed to you without a fight on your hands.
You could even consider offering incentives to customers who pay their bills promptly.
Liquidate your assets
Do you have equipment that you no longer use or stock that is becoming redundant?
Consider selling it to make quick cash.
Obsolete and non-working equipment takes up space and binds up capital that could be used more effectively.
Try not to hold too much stock, either.
Excessive inventory can quickly become redundant and useless as consumer needs evolve, and new materials are introduced.
Consider selling any inventory that is unlikely to be used in the next 12 months unless the cost of keeping it is small and the proceeds from the sale are marginal.