Many businesses think that the best ways to generate cash flow in a business is to boost sales and net profit so there is more money.
While this may help the situation, it does not guarantee it. Here are five positive cash-flow ideas any company can start using today:
1. Invoice customers sooner or more frequently.
The quicker a company can get paid for their products or services, the more cash flow they may have for expenses or to put toward new investments.
Consider sending your invoices out either in advance or when the products or services are delivered. Too many companies either wait weeks to send invoices out or do their invoicing only once a month.
Additionally, if the company provides ongoing services to customers, consider billing them twice a month instead of sending a monthly invoice as new ways to generate cash flow.
2. Limit customer credit.
Getting paid more quickly can help boost a company's continuous money flow. Consider limiting the number of customers or the amount of credit available at any point in time. You can always asked to be paid in advance or with a credit card at time of delivery.
Recently I was on a sales call with a client and their customer offered to pay at the end of the visit.
My client responded, “No thanks, we will bill you at the end of the month!"
My advice: Don't do this! When a customer offers payment, take it! This is one of the easy ways to generate cash flow.
3. Collect customer payments faster.
Many companies overlook collecting customer payments as one of the best ways to generate cash flow. Most customers want to pay their bills within terms and the polite “squeaky wheel" is more likely to get paid on time.
To help ensure this happens, confirm with the customer that the bill was received after it was sent out, and ask when it will be paid. A week before that date, you can call to ensure it is still scheduled to be paid.
If the payment is not received a week after that date, call again to see what happened. Companies can also stop waiting for mailed checks by setting up electronic payments to any bank account.
4. Pay vendor bills on time with a credit card.
When your company has additional time to pay its own bills, you may have more cash flow. That's because more of your cash will stay in the business since it is not being used to pay vendors.
For example, if payment is due in 30 days, pay on that date, but use a credit card to do it. This can typically extend the time when cash is used to pay this expense by 30-45 days depending on your card's billing cycle.
5. Minimize inventory and maximize its turns.
How much inventory a company carries and how often it turns are two critical ways to generate cash flow. The value of a business's inventory at any point in time is cash invested in the company that is not accessible to pay other expenses and can't be taken out by the owners as profit.
To minimize inventory, you can decide the immediate fill rate that customers will accept—that is, the percentage of time the product is in stock. Consider setting low reorder points for inventory and reordering lower quantities. This can help keep excessive inventory from just sitting on the shelf.
What have you done in your business to increase your cash flow?
Read more articles on cash flow.
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