Create More Cash Flow

November 10, 2018

At one time or another, most small businesses or SMEs need more cash flow. When the economy falters and money gets tight, it then becomes even harder to maintain historical cash flow levels. During tight times, borrowing needed funds also becomes more difficult. Even when funds are available through various lending sources, many times the cost of borrowing increases as lenders see risk factors also increasing. What’s the answer? Good cash flow management.

Practice these tips to stay afloat and ahead of the bill collectors:

Speed up collections – Nothing helps cash flow better than speeding up collections. No need to operate as a banker for customers. Don’t be bashful about collections. Invoices must be sent promptly. Don’t just send notices, but call if necessary to collect. Remember, the “squeaky wheel gets the grease” or in the case of collections, the “calling business gets the money!”

Auto pay or fund transfers – For some accounts, automatic payments might be the key. Automatic monthly bank withdrawals or credit card payments can ensure regular payments, thus, reducing administrative time and costs. If you never ask, you’ll never know if this is an option for some customers. 

Use vendor payment terms to your advantage – When suppliers allow payment terms of 30, 60, or 90 days, small businesses and SMEs should always take advantage of the opportunity rather than paying immediately. Holding cash and delaying payment to suppliers, when allowed, makes prudent use of cash. No sense paying in advance of terms just to clear the books of a vendor liability when the cash can be used for other purposes that will generate revenue resulting in more cash inflow. If discounts are given for early payment, this is a different scenario. Not taking advantage of offered cash discounts is a costly use of money if cash is available. Another possibility is to ask about cash discounts if not offered. There is no harm in asking.

Request milestone payments – Depending on your business, establish milestones for payment as work is completed, products manufactured, or orders delivered. Receiving money periodically during the sales process helps bring in cash quicker than waiting until the end of the process.

Trim expenses – When cash flow is down, look not only for ways to increase inflows, but see what can be done to decrease outflows. It is rare that a business cannot find some expenses to trim. What is trimmed or eliminated today can always be reinstated at some time in the future when cash flow is no longer a problem.

Line of credit – Many times it is difficult for small businesses to borrow money, but if approved, a working line of credit can be beneficial in smoothing out the peaks and valleys of cash flow. With a line of credit, cash is borrowed when needed and repaid once cash flow resumes to a healthy level. 

Non-traditional or alternative financing - When traditional borrowing is not available, there are many sources for non-traditional borrowing for small businesses. Interest rates will be higher due to the added risk the lender assumes, but non-traditional borrowing might be the only source of debt financing.

Inventory reduction – Inventory ties up working capital. Small businesses and SMEs must have tight inventory controls, so they buy what sells and in the right amounts. Reducing overstocked inventory frees up working capital that can be used for other urgent business purposes.

Renegotiate contracts – In a tough economy, most businesses likely feel the same sting, which means they are more prone to negotiate than when times are good. So, during tough economic times, check with landlords, lenders, suppliers, and contractors to see what changes might be negotiated that will have a positive effect on cash flow. 

Cash is king in a small business and cash flow management...both in and crucial for success. 

Posted by: 
Association of Accredited Small Business Consultants


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