Tax time is here as well as new cash tariff outlays if you import goods for your company. There are ways that can be used to improve your cash flow that help with these cash outflows. Many of these tips you may already use, and you might discover a few more here.
There are three areas of focus to maximize cash availability: cash collection, cash payments, and managing costs. For many, there may also be inventory management as well. Each of these areas have specific steps and require process changes. For cash collection improvement, try these changes:
• Invoice daily as you complete shipping or providing the service. Waiting till the end of the week or end of the month makes you the customers bank.
• Shorten your payment requirements from 30 days to 15 days.
• Review customer credit limits to adjust collection time for those slow payers.
• Use ACH or electronic check collection to avoid mail time.
• 10 days before invoice is due, contact customer to confirm your invoice is in their accounting system to avoid delays.
• For large invoices, offer a cash discount refund once invoice is paid. Do not issue discount until payment, otherwise many customers may take the discount and pay late anyway.
• For longer projects, negotiate a deposit where possible and progress payments to reduce the cash usage.
Another area of focus is the accounts payable and cost management process. Some process changes are:
• When you can, negotiate longer payments terms as you place your order with the vendor. Being up front with vendors will get you goodwill and cooperation. Once the vendor changes terms, honor the agreement and do not degrade the vendor’s confidence in you.
• Use credit cards to delay payment until it is due at the card. Pay the invoice with a card at invoice due date and then get another month with the credit card due date.
• If you are offered a cash discount for early payment, take it! The discount is more than you would pay for line of credit interest.
• Delay purchases as long as you can and reduce inventory when applicable.
Additional steps involve operational planning to create just in time purchasing. They are:
• Minimize staffing and pay overtime when needed. Avoiding unnecessary overtime takes constant vigilance.
• Develop a 13-week cash forecasting model to anticipate cash needs to plan which moves are necessary. This includes forecasting sales, inventory purchases, and cash collection by each client as they have different habits.
• For longer term projects, make sure that you have price escalation clauses to adjust for unexpected cost increases from your vendors.
• If there is an opportunity, upsell more services or products with clients via discounts for early ordering with a deposit. This can help put more inbound cash into your cash forecast.
A combination of these steps should help maximize your cash flow and also provide you with some planning insight into smoother cash flow and less stress. In addition, the added management attention could improve your profitability.
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