Cash is king when it comes to growing a business. Businesses often come into problems when they don’t know how to manage their cash flow efficiently. Regardless of whether there is negative cash flow or positive cash flow, small business owners will find themselves struggling to expand, meet operational goals, or access working capital if cash flow is not managed correctly. Cash flow issues could arise due to seasonal fluctuations or keeping up with demand, but as long as a business stays on top of it and finds a financial solution to help them through, it doesn’t have to be a big problem. Below are some tips to help you manage your business cash flow effectively.
How to improve your cash flow
Keep running measurements of your cash flow
Keep a running tab of your cash flow statements to project your business’s outcome. Both long term and short term projections are useful when measuring cash. Prepare projections yearly, monthly, or even weekly when needed. Accurately projecting your cash flow will help you analyze your needs and prepare you for cash flow shortages before they hit.
A cash flow plan is a “guesstimate” on your customer’s payments, your vendor’s patience, and how to handle your upcoming business expenses. It’s important to note that the amount of cash won’t always come in at the same rate when preparing your projections, and seasonal fluctuations need to be accounted for.
Manage your accounts receivables
Unfortunately, you don’t get paid as soon as you make a sale, which causes some cash flow issues. One way to improve these issues is by managing your receivables. To turn supplies into products, products, or services into receivables, and receivables into cash, you have to manage them accordingly. Some ways to do this are by:
- Offering discounts to customers who pay their bills on time
Credit check all new csutomers
Require a deposit from customers
- Sell old inventory
- Issue invoices quickly and follow up on late payments to get paid faster
- Avoid working with slow-paying customers
Manage your accounts payables
It’s important to oversee expenses when operating and growing your business. When your expenses grow faster than your sales, examine the costs to control them. Here are some tips:
- Take advantage of your creditor payment terms and use the full pay term to make your payment.
- Pay your suppliers on time or early when you can afford it. It can help you negotiate better deals in the future and build goodwill for your relationships.
- Communicate with your suppliers and build a relationship. If anything ever comes up, you’ll need to know they are understanding of the circumstances.
- Sometimes it’s more important to choose suppliers with flexible payment terms over the lowest price.
- In times of cash flow shortages, make sure a late payment does not cause any significant issues.
Find a financial solution for consistent cash flow
One of the best ways to manage your business cash flow and avoid cash flow shortages is by working with a accounts receivable financing company, also known as invoice financing. When you work with a factor, you will always get paid on time, meaning you can easily access your working capital.
Accounts receivable financing works by turning your unpaid business invoices into immediate cash. You’re typically advanced 70% to 95% of the invoice’s face value upfront, and you’ll receive the rest, minus a small fee once your customer has paid their debt. You’ll incur no new debt as it is not a loan. It is a line of credit extended to you based on your outstanding invoices. Invoice financing helps prevent financial strain on a business as they no longer need to rely on the customer’s payment term for business operations, paying employees, and supporting growth.
Reasons to consider accounts receivable financing for your business
Businesses that operate in the B2B space with clear repayment terms should consider invoice financing. A company can access the cash tied up in the payment cycles of its customers by financing their receivables. Since approval is typically based on your customer’s reliability, the process is fast and easy, and you have immediate access to your funds.
If you carry a high invoice balance in the B2B space, experience cash flow shortages and can’t keep up with business operations, or are struggling to secure credit lines from traditional lenders, accounts receivable financing is the best solution to help you manage your cash flow.
For more information on how you can manage your cash flow with Porter Capital’s financing solutions, apply now.