Whether you are running an existing or start up a new company, you need a very good cash flow to succeed
According to Dun & Bradstreet: “90% of small business failures are caused by poor cash flow. Put simply, not enough cash coming in the door and too much going out.”
Take note of the following to improve on your cash flow otherwise you are goner!
INVOICING AND COLLECTIONS
Send invoices right away. It is important that you get cash coming into your business as quickly as possible. When you confirm a sale, email an invoice out right away that your customer can pay. Where a customer makes a part payment make sure you send a reminder on outstanding or receivables.
Make it easy for your customers to pay. You need to have a good invoicing method that makes it easy for your customers to pay as soon as they receive the invoice. Include your bank account details so that the customer can lodge in check or transfer fund into your designated bank account.
Only offer discounts as a last resort. I’m not talking about factoring your accounts receivable, as that is rarely a good decision. If you really need cash badly, offer a small discount like 3%-5% if the invoice is paid today. If you feel you are not going to collect and a discount might change that, then some money is better than no money. And make sure that the terms and condition on cash discounts is properly spelt out so that you do not lose out the discount even when the customer did not make the payment on time.
DON’T MAKE BAD DECISIONS WITH THE CASH YOU DO HAVE
Hold off on paying your bills until as late as possible. While this seems like common sense, most business owners don’t follow this advice. You may reschedule the payment to a later date but make sure that it did not affect your credibility negatively.
KEEP PROPER AND ACCURATE RECORDS
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- Always sort your bank account by cleared status.
- Make sure accounts receivable (invoices to customers) and accounts payable (bills from vendors) are always up to date.
- Any fixed, recurring payments that hit your bank account automatically should be entered into your records.
4. Estimate the cost of any large variable expenses that you expect to hit your bank account as they get closer. A good example of a large variable expense is payroll.
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