Running a business is no cheap endeavor—you have to pay vendors, staff and myriad bills, pour money into marketing and hopefully, cut yourself a check on a regular basis. Did you know many businesses struggle mainly due to cash flow issues rather than lack of actual money? The reasons are numerous, from not being able to receive payment immediately to poor management of inventory. If you are experiencing a bit of a crunch in your business, it is time to evaluate the situation. Here are just a few ways to turn your cash flow issue around.
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Take Stock of the Situation
You really can’t solve a problem until you take a good hard look at what said problem may be. This may sound obvious, but if you are like many business owners, you may be well aware there is an issue but have yet to fully examine the situation. What problems are you having exactly? What financial obligations are you having trouble meeting?
Extending credit and waiting at least 30 days for payment is commonplace in many industries—it offers benefits for both sides, but ideally, getting paid right away is best. But, if that is not possible, getting your receivables operating as efficiently as possible is non-negotiable in any cash flow improvement strategy. First and foremost, stay on top of late payments—many people find it uncomfortable to reach out to clients for fear of offending them, but you have every right to timely payment. If you are haphazard in your efforts to collect on late payers, your business is suffering. Develop a system to be applied consistently. If credit terms are really putting a crunch on your money, you might consider a service like small business factoring, where a lender purchases your receivables for immediate payment minus their service fee.
Investigate Your Inventory
Poor inventory management can put a major strangle on cash flow for many businesses. Take a good hard look at inventory to see if you can make any changes. You may find you are ordering too much of something or ordering items sooner than required to replenish stock. Perhaps certain items are not selling as well, and you could get rid of them altogether.
Hold Onto Money as Long as You Can
There is definitely a nice psychological boost that comes from paying bills early. You are being financially responsible, and you don’t have to think about it anymore. But, this may not be the smartest approach if you are having cash flow issues. Waiting a few weeks and paying them when they are actually due is probably the smarter idea. This way you can hold onto the cash you have now, while you are waiting for invoices to be paid and the like, and then use that money.
Talk to Your Vendors
If payments to vendors and payments from clients are not quite matching up, you may find yourself using much-needed money to ensure timely payments to vendors. In an ideal scenario, their invoices won’t come due until after you have provided your goods and services to your clients and they have paid yours.