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Cash Flow: How to Stay on Top of the Silent Killer

Cash Flow: How to Stay on Top of the Silent Killer

It’s one of the most common reasons businesses fail; cash flow is incredibly frustrating.

A business can be performing exceptionally well by regularly attracting new clients and seemingly making great profits. However, it can all be for nothing if the cash isn’t flowing in a timely manner.

This is a problem that can affect some businesses more than others, with those who have little cash reserves being unsurprisingly the most common victims. Bearing this in mind, today’s post will showcase how you can mitigate the issue in your company.

Stay Strict with Payment Terms

This strategy is often easier said than done, but it’s important to be as strict as possible with your payment terms. This means that you should require payment upfront or, at the very least, within a very tight window.

This will undoubtedly alienate some clients, but it’s important to remember that you don’t want to do business with clients who can’t or won’t adhere to your payment terms. In the long term, it can be a very costly mistake.

Build a Line of Credit with the Bank

Following on from the above, it’s important to have a line of credit with the bank. This will ensure that you will have the funds available to you in times of need to keep the business afloat.

Don’t be under the impression that debt is always a bad thing. Sure, it certainly can be, but you can also use it to your advantage. By having an extended line of credit with the bank, you might be able to start accepting those customers that stand firm with their payment terms and insist on paying 60, or sometimes 90, days after the work is complete.

Use Invoice Factoring

Invoice factoring is a great way to get cash in your hands quickly. It works by a third party (the factor) buying your unpaid invoices at a discount. This means that you can get cash in your hands within 24 hours of sending the invoice.

It’s important to note that not all invoices are eligible for invoice factoring, and there are some fees associated with the process. However, invoice factoring can be a great option if you are struggling.

Keep a Tight Rein on Expenses

This is something that all businesses should be doing, but it’s especially important when cash flow is an issue. This is where strict budgeting enters the picture. Thinking of employing more staff? Think about discreet insurance costs and even how you will fund pensions. This is just one example, but having a look at the bigger picture with your expenses will serve you very well when it comes to dealing with cash flow.

Negotiate Longer Payment Terms with Suppliers

This strategy can be used in tandem with the one mentioned in point number 2. By negotiating longer payment terms with your suppliers, you’re giving yourself more breathing room in cash flow.

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