There's scarcely a business out there that doesn't experience rushes and lulls in its cash flow. If only there were a way to make sure you had the cash you needed on-hand year-round, despite business cycles being what they are. There can be a way—by having a smart, year-round cash flow plan.
This type of planning can take multiple facets of your organization into account, including accounts payable, accounts receivable and inventory management. Building strategies around each of these three business areas can help you get ahead of the competition when it comes to keeping the cash flowing year-round.
Creating a Cash Flow Plan Around Accounts Payable...
When to pay your vendors is always an intriguing dance when developing your cash flow plan. While you don't want to be known as the slow-to-pay customer, you do want to keep your cash on hand for as long as possible. This can mean that you'll have more cash on hand year-round even when your receivables aren't flowing at peak volume.
So how do you strike a happy medium between being slow to pay and reliable? In a time where behemoths like Boeing are extending their accounts payable terms from 30 to 60 days, this may be an ideal time for your business to explore builiding flexible terms with your vendors and your cash flow plan. Here are some tips for seeking improvements:
- Explore discount opportunities: Consider speaking with vendors and seeing if they're willing to extend discounts for invoices paid prior to their due date. They might be willing to help you save money if it means that money appears in their account faster.
- Involve multiple decision makers: The people paying your company's bills may rarely be the people or departments making the purchase decisions. Establishing a regular collaboration between your finance team and your procurement teams may help improve purchasing habits. You can help boost your cash flow by looking at historical ordering practices and the time taken to deplete those purchases. Your financial team can help improve purchasing habits to optimize pricing and reduce any cash flow-hindering charges like rush fees and expediting shipping.
... Accounts Receivable...
Much like accounts payable, a smart year-round cash flow plan can mean making it easy and attractive for your customers to pay you—and fast. These strategies may help you amp up your cash flow plan year round by employing ease and incentives:
- Use smarter accounting software: Many invoicing and accounting programs come with integrated payment systems. Consider looking for software that makes it easy for customers to pay you with a wide variety of credits cards, ACH or bank transfers. Flexibility in payment types may mean fewer excuses and delays in payments headed your way.
- Incentivize early payments: As with your accounts payable, you may want to extend your customers the same early-pay discount courtesy. When you institute a discount policy for early payments, sending out a broad notice—via email and regular mail—can help alert customers to your new discount policy. Notating this discount and the associated payment windows on your invoices can be helpful as well.
- Stand by your late fees: Credit cards and mortgage companies have standard late fees. It may be time for your company to do the same. For vendors who have trouble paying on time, consider establishing a grace period while not being shy about your late fees. When a customer is late the first time, you can call them and offer to waive the fee for immediate payment over the phone. This can help establish good will while reinforcing that the fees exist. There's nothing wrong with having a few more dollars in your year-end coffers from invoices that were paid late—and for being paid for the inconvenience.
... and Inventory Management
As mentioned in accounts payable, a smart cash flow plan can include connecting and empowering communication between all the people spending money in your organization with the team managing your finances. So, where should your team begin with revamping your inventory practices for the benefit of your year-round cash flow?
Intuit suggests four steps for businesses looking to reduce their inventory costs:
- having a regular and accurate physical inventory count,
- liquidating your excess inventory through practices such as bundling, liquidation sales or even charitable donations,
- tailoring your purchasing practices to maintain more appropriate inventory levels to match sales volume,
- establishing reorder alerts so you know when it's time to replenish. (Reorder alerts can help you avoid rush fees and customer dissatisfaction due to out-of-stocks, which can be harmful to cash flow.)
For many businesses, inventory shipping out the door is how you get revenue back in the door. But you may want to make sure that your inventory methods aren't inadvertently sending dollar bills out the door with each shipment.
Read more articles on managing money.
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