3 Prudent Ways to Improve your Business Cash Flow

An old proverb says, “Cash is the king”. Free flow of cash is the life blood of your business and without adequate supply of cash, your business endeavor may end up in failure. The difference in the time on which you, the business owner, pay to your employees & the suppliers and the time on which you collect cash from the customers, leads to cash crisis.

Many profitable business establishments had to file bankruptcy because, at a particular point of time, the amount of cash flowing in was far less than the amount of cash flowing out. Given this, it is essential that you should have a proper cash flow management strategy in place. If you do not have proper cash flow management in place, you will fall short of money to make necessary investments required to compete with other market players. Otherwise, you may have to borrow money to run your business smoothly but at the cost of interest payments.

Though proper cash flow is the fuel to run your business smoothly, but majority of the business owners do not have control over cash flow. Poor cash flow management can be attributed to increasing number of business failures. Various studies by different credible agencies have, time and again, proved that capital inadequacy is the prime reason behind failures of small business. Given these, having proper cash management strategies are highly essential for successful business. Here we discuss some strategies on how to improve cash flow.

Improve Receivables

If you receive payments for the products immediately at the time of sale, then there will not be any cash flow problem. But, in actual practice that does not happen. There is a time lag between the products delivered and payments received. You can lower down this time lag by following some smart strategies. You can start offering discounts to the customers who make immediate payments. You can also set up post office boxes so that even the customers residing in far away areas can mail payments and the authorized banks can process the amount quickly. It would be a smart strategy to centralize your business banking activities at one bank. You can also request your clients to transfer the amount through depository transfer checks.

Increase Sales

It is quite easy to understand that if you want to increase cash, you need to find out new customers and to sell more to the existing customers. In fact, this is the objective of all businesses. How you can increase your sales volumes boils down to how prudent are your marketing strategies, how good your product is and what your competitors are doing. However, here one thing that is to be noted is that sales should not be on credit. Otherwise, this will increase the amount receivables and not the actual cash.

Tighten Credit Requirements

When you are at an initial stage of your business and trying to gain ground, you often pay credits to the customers in order to sell more. This sometimes leads to cash flow problem, as the customers sometimes do not make payments on time. So, it is recommended that before providing credit to the customers, you must determine the risks associated with providing credit to a particular customer. You need to tighten the criteria for obtaining credit from you.

By following these tips, you are likely to improve your business cash flow. Anyways, you need to review your cash flow on a regular basis and take measures accordingly.