How can small businesses optimise their cash flow?
Posted on 11th March 2021 at 09:41
We have all heard the phrase ‘Cash flow is King’ and this is even more so with many businesses feeling the effects of the coronavirus pandemic.
With over 30 years’ experience in helping small businesses with cash flow management strategies, we share with you our tried and tested methods to help improve a company’s cash position.
To try to help a variety of the sectors our clients are in, we have included a range of options that will give a starting point to formulate a cash-flow plan going forward.
Here are six strategies that you could try:
1. Encourage customers to pay faster.
This might seem an obvious tactic but there are many ways for you to ensure invoices are paid faster so that cash comes in quicker. You can negotiate payment terms with a discount for shorter payment terms. If you have unpaid invoices, don’t shy away from those awkward conversations or if you do find it difficult an option is to instruct a specialist debt recovery agency.
2. Deposit or milestone payments.
Companies whose product or service requires substantial cash or effort before they deliver are good candidates for asking clients for a deposit or milestone payment. Graphic designers, web designers, marketing agencies, PR agencies and even construction companies fall into this bucket. Set out your terms clearly at the quoting stage to safeguard cash flow further down the line.
3. Request more favourable payment terms from vendors.
The main point here is that your business and suppliers get paid for the products or services being provided. Asking your vendors for additional time to pay an invoice can make the difference between missing payroll and expanding.
Examples of what you can request can include, if payment terms are 15 days, ask for 30 days. If they are 30 day’s, ask for 45 etc.
Valued clients will find that requesting a more favourable arrangement will at least be considered but be aware, you might need to be persistent. Afterall, they also have a business to run and cash flow will be just as important to them too. Even if you have asked before, there is little to lose by making the same request again. They might be in a different position this time.
4. Increase margins
The reason why you would do this is to help spin-off more cash that can then be used for operations.
A. There are only two ways to increase margin;
Increasing charges – this is a real option for businesses with strong demand or a unique product or service.
B. Decreasing cost to deliver products or services
5. Finance purchase orders
Financing purchase orders is a way to pay for much needed supplies ahead of having the cash available to pay for them, especially if you have a larger than expected purchase order. It is a chicken an egg situation, where you need the supplies to deliver your product, but you need the product to sell to have the money to pay for the supplies. This is a good option for manufacturing or merchandising companies that require a significant amount of cash to fulfil their purchase orders. As soon as you have the purchase order, the financing company will pay the vendor on your behalf so the purchase order can be fulfilled.
6. Consider taking card payments or offering direct debit.
Card processing has developed to such a stage these days that lots of small firms can take advantage of the lower turnover thresholds required by providers or even to the extent of one off irregular payments. We can put you in touch with service providers through our network of contacts so always give us a call if we can be of assistance.
Consider which one of these strategies might help your business to manage cash flow, there are more options available if none of these seem feasible for you, we are always here to help and advise you.
For more information about effective cash flow management strategies from one of our experienced and qualified team, please call 0121 550 8509 or email firstname.lastname@example.org.
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