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How to Manage Your Business Cash Flow

| December 2, 2015 | Financial Wisdom

Cash flow management is a skill that business owners learn over time. After running your company for a year or two you’ll get to know the ebbs and flows of sales cycles, when you can expect your customers to pay and how long you have to compensate vendors. You’ll also get better at estimating upcoming expenses.

These tips on managing your payables and receivables will help you maintain positive cash flow, avoid financial trouble and make better business decisions.

Improve the way you manage receivables

The first step in better managing your cash flow is finding ways to ensure you get paid as quickly and as often as possible.

Some small businesses request a partial deposit on every order. Others offer incentives to customers who pay early. Here are a few simple ways to keep the cash flowing into your account:

  • Make cash your preferred form of payment.
  • Offer a discount for customers who pay ahead of the due date.
  • Hire a factoring company to provide quick partial payment.
  • Negotiate a payment plan with long-term customers who pay late.
  • Charge late fees on past-due invoices.

The other equally important part of cash flow management is paying your vendors and suppliers.

Handling payables like a pro

While it’s good for your business to have regular customers who pay early, the reverse is true when it comes to your payables. Avoiding payment as long as possible will help keep money in your account longer so you always have cash on hand.

These tips will help you hold onto your cash longer:

  • Know when every payment is due. Schedule electronic payments precisely on the due date to avoid late fees.
  •  If you’re in a cash flow slump, reach out to the companies you owe a payment to ask for more time. You’ll earn trust by being up front about your financial situation. Be proactive about proposing a payment plan if necessary.
  • Seek out vendors who offer flexible payment terms or early payment discounts so you can save a bit of money when you can.

The best way to accurately project cash flow is to always stay on top of your finances. Taking advantage of small business accounting software can help you quickly prepare up to the minute reports based on your sales figures, expenses, profits and invoices.
Set up your business with credit facilities to help smooth out inevitable cash flow lumps. Talk to your financial institution about a business credit card so you can take advantage of the no-interest payment grace period. And arrange a line of credit you can access when funds are low – before you need the money.

Recommendations

  • Be clear and upfront with customers about your payment terms. State them in writing.
  • Work with your financial institution to explore available credit tools.
  • Ask your accountant or bookkeeper to explore tax refunds and credits that may apply to your business.