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10 best cash flow management techniques
For people who own a business and their sales are rapidly increasing with exponential profits each year, they know that they their firm is heading towards a prosperous future. However, it is important to note that even growing companies with immense profits can be going through cash flow troubles. This normally happens when the finance department of a business is not performing up to the mark.
For instance, if the debts have to be paid before you get your hands from your sales, there will be cash flow issues. What this means is that you can’t pay your vendors as you haven’t collected the money from your sales. Therefore, the following are some of the best cash flow management techniques that you can use to get rid of problems like these:
Try to Lease instead of buying.
Except for a situation where a business is full of cash, you need to have a consistent cash flow for daily operations. This can be achieved by paying your vendors on an installments basis which is better to enhance cash flow. Another plus point is that lease payments are counted as a business expenditure which is beneficial in terms of your taxes.
However, because leasing the office supplies and equipment is more costly than buying, it can be a burden for cash flow for businesses that are looking at the bigger picture.
Types of cash flow
Concession for early birds for better cash flow management
This means looking at your advertising strategies and providing discounts to customers that pay you early. This creates positive scenario for both the business and the customer as getting the cash early is what you want to pay your vendors which ultimately means better cash flow.
Overseeing customer credit inquiries for cash management
For customers that don’t pay you in cash, it is important to perform a background credit check before registering them in your data base. This is important as clients having poor credits is an indicator that they won’t be paying you on time.
This becomes quite important when you want to make sales and late payments exist which can be bad for your cash flow. A good way to solve this is if you are considering people with bad credit history, make sure to opt for a significant interest rate.
Formulate a buying organization.
This involves investing in firms that have a big cash pool and you want to involve them for lowering costs with suppliers. This usually involves getting large concessions from firms who purchase stock in bulk.
Reinforcing your inventory
This involves performing an inventory audit by which you can create a record of the goods that aren’t performing that well in terms of sales. These products create a lot of cash flow problems and can affect your business negatively.
Therefore, you shouldn’t invest in products that aren’t selling well and dispose them off or discontinue them. The important part here is to be objective rather than being emotional.
Generate invoices instantly
By doing this you can receive invoices more efficiently. This is great in knowing the importance of a timely and accurate invoice. For this you need your invoices to be understandable and the clarity shouldn’t be compromised.
This can be achieved by correctly placing the due dates for your invoices in bold figures. This should be placed at both the top and the bottom of the payment slips. You should also educate the receiver about the accepted payment modes. For companies that provide the facility of late payment fees, this information must be mentioned in the invoice slip as well.
Mode of payment
For those who pay electronically, they can wait till the morning of the due date to make the payment. This additional time can improve the cash flow. Additionally you can also utilize a credit card that can facilitate you with the grace period option. This seeks to provide you options for increasing cash flow. However, you should stay cautious and avoid building up additional debt.
Getter better deals from your suppliers
Price increase is what affects many business cash flow statements. This is important as it affects the cash position leading to a reduction in sales. However, it is completely fine to play with the pricing to find the perfect way to manage cash flow.
Utilizing a high-yield savings account ( HYSA )
A high-yield savings account provides consistent amount of operating cash flow. These provide interest rates that are quite higher as compared to the average positive cash flow management strategies.
Paying less to suppliers
If you have established friendly relations with suppliers and earned their goodwill, you have a better chance of maintaining your cash inflows. This can also be done by owning a business credit card with adequate amounts of cash. If you care about your business’s financial health, a well-communicated supplier can help you have a better line of credit by having a discount from them so you can relax your cash balance.
Importance of cash flow
Cash flow is the total amount of funds that are coming in and out of a firm. They are the number one deciding factor for determining the prosperity of the company. Cash inflows and outflows are the cash coming in and out of a company. Inflows mainly consist of revenues and sales from goods. The cash outflow is expenses and debts. It is important for a business to manage the cash flow in a way that they have a positive cash flow, meaning that inflows exceed outflows.
Why cash flow analysis is important and how to solve management issues
In conclusion, healthy cash flow results from in business practices that are consistent, efficient and free of error. Even though by using the above 10 techniques can be beneficial to impact your cash flow in a positive way, it is the job of a business owner to make the correct decisions about your marketing practices, better customer support services and the right product development for retaining and acquiring new customers.
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