6 Small Business Practices to Improve Cash Flow
It would be difficult for any small business to survive without a substantial amount of cash flowing through the company at all times. If you sometimes feel that money is leaving your business faster than it’s coming in, you should consider taking steps to reverse that dangerous situation.
Here are some things you can do to help manage your cash flow and hence improve the health and well-being of your small business.
- Make it Easy to Get Paid
You should give your customers more than one or two options to pay your invoices. Cash and checks are good, but so are credit cards, debit cards and automated payments. You might also want to think about using companies such as PayPal, Square, Apple Pay or Venmo. To encourage your customers to pay you sooner than later, you might consider requiring deposits on large or custom orders or offer discounts for those who choose to pay you upfront.
- Factor Your Invoices
Here’s how factoring works: A factoring company pays you a percentage of your accounts receivable as soon as you issue invoices. The factoring company then must get the money from your customers. Not only do you receive your cash right away, but you also are relieved of the time and expenses related to collecting the money that’s owed to you. Factoring doesn’t increase your debt because it’s not a loan. It makes your P&L look better than if you borrowed money and had a liability owed to a bank.
- Get Rid of the Gap
Does it make sense to give your customers 60 days to pay you if you have to pay your suppliers in 30 days? That doesn’t seem logical, and it also creates a gap in your cash flow. In addition, if your suppliers are charging you a penalty for paying late, shouldn’t you be doing the same for your customers who don’t pay their bills on time? In many cases, late payment charges provide an excellent incentive for companies to pay their invoices when they are due.
- Watch Your Inventory
Take a serious look at your inventory and determine which items are moving quickly and which are not. You might be unnecessarily tying up a lot of cash in inventory. Even if your suppliers are offering large discounts, think twice before buying items that might not sell quickly. You can also improve your cash flow by moving outdated stock at discounted prices.
- Move Your Money Around
Keep most of your business’s money in an account that offers a decent interest rate and transfer cash into your operating account as needed – but be careful to pay attention to minimum balance requirements.
- Paying Your Employees
You have the option of paying your employees twice a month or every other week. Which is better for you? If you go with every other week, you’ll be writing checks 26 or possibly 27 times during the course of the year. Oh the other hand, if you pay twice a month, payday will come only 24 times over a 12-month period, and you’ll save on administrative and other costs related to payroll processing. Your employees will receive the same amount of money either way.
Are you looking for ways to maximize your company’s cash flow? To learn more about factoring, visit FactoringServicesUnlimited.com or call Factoring Services Unlimited at 361-444-5654.
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