4 Tips to Maintain Your Small Business’s Cash flow
A business owner knows that cash flow is the heartbeat of a business, and its maintenance can help you gain a competitive edge in the corporate world. You are more susceptible to experiencing a negative cash flow if you do not efficiently run finance, operations, and investing activities. While some lenders, such as My Canada Pay, offer quick loans to revamp the cash cycle and even deal with business office renovations, it is recommended that you follow the following tips to avoid such haste and delay.
In this article, we will list the best tips to help you gain control of your cash flow.
1. Conduct Customer Credit Checks
A credit check is essential to identify and mitigate potential risks when vetting new customers if you offer deferred payments. If a client has bad credit, it means may not pay you on time. Note that late payments hurt your cash flow. To avoid this, you can ask the customer to pay in cash or set up a credit account with a high-interest rate for them. You can request online request forms from credit reporting agencies for free and receive combined information about your customers’ credit history from public records and reliable sources.
2. Lease, Don’t Buy
Usually, when buying equipment, supplies, or real estate, the entire cash flow is disturbed as a large sum of money is taken out of the business account. In contrast, leasing allows you to pay in small increments, generally requiring less cash upfront, which helps maintain a healthy cash flow.
Leasing does not give you ownership of the asset, which works in favor of the company when buying modern equipment. You do not want to make a balloon payment and get stuck with one outdated piece of equipment. Leasing will allow your budgeted cash flow to stay intact because once your lease is over, you probably wouldn’t need the equipment anymore. So whatever you have leased will go back, allowing you to explore new equipment options.
3. Offer Discounts for Early Payment
An early payment discount is a win-win situation for both the buyer and the supplier. The buyer gets the discount on the item while the seller receives the payment earlier, which helps enhance the business’s cash flow. In addition, discounts can build strong customer relations that improve businesses’ profitability down the road. Early funds can be invested in projects focusing on innovation and productivity, reaching high customer acquisition levels.
4. Use Electronic Payments
Electronic payments eliminate the inefficient processes related to making manual payments and invoice processing. They offer shorter DSO (Days Sales Outstanding), a ratio denoting the number of days the company takes to collect receivables. With a shorter DSO, the company can use cash sooner, unlike paper checks which may take 15 days to clear. Early receivables translate into healthier cash flow and increased profits. In addition, decreased payment processing errors, reduced transaction costs, and financial transparency boost businesses’ efficiency.
Cash flow is an essential determinant of your company’s success. You can achieve a healthier cash flow if you are able to run operations efficiently. You must constantly develop strategies to implement in customer service, marketing, customer acquisition, and product and service development. Also, improving your payment plans with the addition of electronic payments can significantly enhance your business cash flow. This way, you can avoid any potential financial discrepancies in your business while achieving efficiencies and potential revenue.