A Crash Course in Cash Flow
Managing cash flow is an integral aspect of business success. Without steady cash flow, companies cannot purchase inventory, pay employees, or even cover basic operating expenses such as rent and utilities. Here are some tips that can help you boost the cash flow at your business.
Use Innovative Sales Techniques
Brainstorm how you can increase stagnant sales to strengthen cash flow. For instance, layaway sales programs provide customers with the opportunity to select products and make payments for future delivery. If you have products or services that clients use regularly, consider a subscription service.
Encourage Prompt Payments
Late-paying customers can wreak havoc on your cash flow. To avoid this, offer discounts if clients pay promptly. For large or custom orders, insist on security deposits. Let customers know that if payments are not made by contracted deadlines, interest accrues. If clients are extremely delinquent in their payments, consider turning their accounts over to a collection agency.
To reduce expenses and stimulate cash flow, repair instead of replace defective equipment. If any of your equipment or inventory is redundant or obsolete and merely taking up costly storage space, sell it. Avoid the allure of new technology until it is absolutely necessary to upgrade. To keep needed working capital in your business as long as possible, delay payments to vendors until just before deadlines, as long as these delays do not impact your credit rating. Alternatively, consider offering cash payments to vendors in exchange for deep discounts.
Open a Line of Credit
Despite your diligence in managing income and expenses, shortfalls inevitably occur. To cope with these circumstances, consider opening a line of credit with your company’s inventory or accounts receivables as collateral. Alternatively, arrange for accounts receivable financing with a factoring company. In this arrangement, the factoring company purchases your accounts receivables and advances you 75 to 80 percent of the value of the invoices. When your customers pay their bills, you receive the balance minus a factoring fee.
For more advice on maintaining and strengthening business cash flow, contact us at Royalty Business Lending.