Cash Is King
Let me explain. There are many businesses that are started and many more that fail. Starting a business is difficult just remember, Cash Is King.
Cash Flow is essential in running any business. You know that, we know that but why do businesses especially small businesses neglect this fact. There are many reasons but most importantly small businesses want to make sales and keep their customers happy.
Here are 10 tips to consider to improve your Cash Flow (happiness).
- Banking. Very simple concept. When you receive payment deposit it. You are not too busy to do that, Are you?
- Billing. Waiting to mail the invoice until the customer receives the goods is usually not wise. Send the invoice with the goods and a follow-up in a few days. This ensures visibility to the customers A/P department.
- Fill and Ship On Time. Makes sense but there are many issues that can prevent efficiency. The sooner the customer receives the goods the sooner they can pay.
- Offer Trade Discounts. Incentives will encourage customers to pay sooner. However, you must have the margins to be able to afford the discount. Factoring may help.
- Follow-up on Past Due Accounts. Don’t hesitate on this point. It is the most crucial aspect of cash flow management. If your customer knows you are on top of your A/R chances are they will pay you first. Keep a record of the call and follow-up if payment has not been received when promised.
- Established Credit Practices. In a rush to make a sale the one thing that gets overlooked is the customers credit rating. Check with Credit reporting agencies and trade reference organizations to find out how quickly or slowly they pay their bills.
- Supplier Payment Terms. Just like point 4 only you are asking suppliers for an extension of credit. They may be in a better cash flow position and may accommodate you if you buy more from them.
- Inventory Control. Inventory needs to be sold, not give you something to dust off. Look at inventory as an asset worth cash, the catch is it’s worthless unless it is sold.
- Reducing Expenses. Common sense right? Wrong. Businesses are so involved in keeping things going they neglect to look at all expenses. Reduce the expenses and don’t cut costs that hurt your profits. The worst thing to cut is Marketing, with few exceptions. The best thing, cut your perks.
- You’re A/P Department. Don’t pay bills before they are due and don’t pay bills late, especially if you will pay a late fee. Obviously, if you are made an offer to pay early for a discount, then consider the opportunity cost.
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