The top principle in increasing your cash flow is to ensure that you speed up the inflow while slowing down the outflow. The challenge is it can be problematic in a volatile market.
During turbulence markets, ensure that you are focusing on systems and speed. These two factors are key. When a business generates enough cash inflow, it should be able to meet its everyday business requirements and reduce the need to take on any debt.
Having a good picture of the state of the business is vital to ensure it meets its obligations while also achieving profit. This also provides a critical buffer during challenging times.
Here are the top tips on how to maintain and increase cash flow.
Offer better payment terms
A simple way to make sure that the money comes in faster is to offer your customers better payment terms. This encourages them to make prompt or even early payments.
While offering flexible payment terms keeps your clients happy, it can lead to financial problems. Thus with a better payment plan, you’re likely to get the money in the bank faster.
Add penalties for late payments
Late payment is a common problem for small businesses. An equally common solution is to charge late payment fees as an incentive for customers to pay on time.
Ideally you would like to be able to avoid such situations, but this way, you’re making sure that you get paid. Just remember to inform clients of any late fees from the outset otherwise you may end up burning bridges. Nobody likes surprise charges.
Negotiate longer payment terms with suppliers
You can often negotiate a longer payment term with suppliers by aiming for the higher end of what you need. Longer payment terms can be negotiated if you are on good terms with your suppliers, so it’s important to build good business relationships with them.
Shorten the sales cycle
Aim to send out invoices as soon as possible after a quote is accepted. Build in progressive payments where necessary. By doing so, you are likely to avoid disputes overpayments. There is no reason why there should be a delay before sending out your invoice.
Periodic payment plans
Having a recurring payment feature means that you won’t need to chase after your clients. Many businesses now set up these sorts of payment schemes to reduce admin time and to get paid faster. If you are a service-based business such as a fitness centre that bills weekly, fortnightly or monthly, payment plans of this nature really work in your favour.
User-friendly payment features
Make it convenient for your customers to pay you. If you include intuitive features such as payment links embedded in your invoice, it makes it that much easier for clients to pay you.
This encourages immediate payment because it’s so easy and your client is not likely to put it off. Add as many payment methods as possible so ensure payment is super easy.
Review your products and their prices regularly
It is a good idea to review the prices of your products every six to nine months. Your costs, competitors’ pricing and the demands of your target market change over time.
By reviewing your prices regularly, you are equipping yourself with up-to-date information and you can make the decision whether you need to change your prices.
Lease assets to improve cash flow
Have you considered leasing equipment rather than owning it? You will free up your company’s valuable cash resources. Not only does it mean that the upfront cost is lower, but also you don’t have to save up and pay a large lump sum to get the asset you want.
By spreading the cost out, you can get better management of your cash flow.