Cash flow is the primary determiner of your business health and is the pressing concern of business owners worldwide. In the credit crunch environment, a lack of proper planning leads companies toward bankruptcy.
As per the findings of US banks, a total of 82% of businesses shut down due to poor cash flow management. The importance of running cash flow goes without saying, as you require it to pay for the inventory, wages, taxes, bills, etc. Get a stronghold over credit management to give your business a better footing in the market.
If you have no idea about credit management techniques, don’t worry. This blog lays out 7 super effective solutions to cash flow problems.
Discuss The Payment Terms With Your Clients
Making a big sale does not mean you are done with your business deal, but there’s still a lot left. You are required to ensure that the client pays you without any delay. A negative cash flow shortage occurs when your defaulter clients’ accounts receivables remain unpaid.
The first step towards overcoming this scenario is negotiating proper payment terms and deadlines with your customers. You can ask for a small percentage in advance to initiate the cash generation and send repeated reminders if they falter on the payments. Tightening the receivables and cash outflows will help streamline the credit process.
- Get hold of your accounts payable process
Building and organizing your accounts payable process helps ease the cash flow fluctuations. If your account management is still not automated, get it done asap. Establish clear communication channels with your team and inform them to pay the outstanding invoices.
Often! Employees seem to ignore the unpaid invoices due to other work engagements, which directly impacts your credit score. Talk to your vendors or suppliers and convince them to extend the payment terms. This will ease the burden, and you’ll have more time to get the money in.
- Take help of incentives and penalties
To encourage the clients to pay early, you can use discount tactics. For instance, a 2% discount on the total invoice value if they do the payment settlement before 7 days. There are other ways to offer a discount like offering cashback on future orders, giving some merchandise, etc. Try to list all these different options in the invoice itself to get the clients motivated to clear the payment sooner.
You can put a late payment fee or interest rate in penalties if they default on invoice clearance. These terms should be clearly stated in your business contract and reaffirmed while raising the first invoice.
- Put your extra cash to work
When I mention extra cash, it refers to the money which does not yield any income. If you have a huge balance in bank accounts that is not receiving a good interest rate, it’s mindful of bringing it to better usage. You can think of transferring it to a bank account that gives a high-interest rate.
Apart from keeping this spare cash in the bank accounts, you can invest it in diversifying your business. Don’t let the cash sit ideally if you have debts to repay. Try to utilize it in the best way possible. You can consider purchasing new technologies that can lubricate your business operations. Doing so, you’ll be able to maintain a healthy cash flow.
- Lease it out!
If you lease out some heavy equipment instead of paying a large upfront amount, you can save your cash reserves from exhausting. When you lease something, you only need to pay in monthly deposits, which do not cause a major impact on your finances.
Generally, there is a huge cost attached to the maintenance and technical repairing of these hefty pieces of equipment. Such cash demands increase your variable cost and hamper the cash flow. But! Leasing out can save you from this trouble as many lease agreements also include repairing services.
- Consider outsourcing a few business functions
Successful business owners refrain from hiring a fully dedicated in-house team for every single function of their business and are also connected with CreditQ. They outsource those areas, which can be done remotely, thus saving a huge chunk. You can do the same and save yourself a good amount that can be otherwise used for business growth.
Carry out a detailed evaluation of your business requirements and gaps with the help of CreditQ BCM service. This will help you understand the kind of services that you can outsource. These services range from IT cell and account management to marketing and human resource.
- Forecast your cash flow usage
The best way to bring credit risk solutions into practice is by forecasting your business cash flow. It includes all your potential cash outflows and income in the upcoming financial year, and all the details are further classified into quarterly, monthly, and even weekly.
It gives you a glimpse into when you will possibly have a cash deficit or cash surplus. This information will guide you in making informed decisions regarding your future business deals.
