For your growing business to keep on expanding, it’s important to keep on top of cash flow management. There are many factors which can affect cash flow, from low profits and over-investment in production to waiting for invoice payments while you still have outgoings to cover.
Often these affect start-ups and small businesses most, though even established companies can encounter such challenges. The good news is that there are many solutions available to help ensure a steady cash flow.
Adapt payment terms
The gap between delivering goods or services and receiving payment can result in poor cash flow and bad debt. For example, if you have to wait 60 days for a payment but need to pay suppliers during that time, it will dent your working capital.
Therefore, it’s worth reviewing and adapting your payment terms, cutting maximum payment times down to one that works best for your business. The same is true when seeking suppliers to work with. Check their terms and compare with the competition, as you may find a better deal elsewhere.
Keeping tabs on monthly incomings and outgoings is the first step to creating an accurate forecast. This is good practice to help avoid cash flow finance problems in the future, whether your business is growing or not.
Many small and medium sized businesses are not financially prepared for the increasing costs that growth brings about, which can disrupt business finance.
An increase in sales and income also comes with an increase in outgoing expenses. For example, paying for more staff to keep up with demand, paying suppliers for more goods or bringing on extra equipment.
Putting together a cash flow projection that takes into account all payments going in and out, seasonal variations and more should ensure you are better prepared for future changes to your cash flow finance.
Evaluate customers, suppliers and inventory
Rather than look for solutions to cash flow problems as a whole, split it down into segments to make things easier. Review your customer base to determine regular clients from one-offs and identify any persistent issues, whether late payments or accounts losing money.
Evaluate your inventory to see if you have too much invested in certain areas and not enough in others to create the right balance. Investing in your bestselling products rather than others is a good start.
When dealing with regular suppliers as well, it may be worth negotiating to see if you can guarantee better terms or discounts to lower your outgoings.
Cutting back on excessive outgoings is one of the easiest cash flow management techniques. Evaluating your inventory and processes should highlight any areas where overspending is occurring.
This could be in the ordering of business equipment, paying suppliers, business expenses, or transport costs. A simple audit could detail solutions to cash flow problems to bring down the outgoings and create a more balanced cash flow.
Whether you’re preparing to stay on top of your cash flow or anticipating the need to improve your cash flow, alternative finance options like invoice discounting can help. This allows your business to receive advances on cash owed by customers without waiting the typical 30 to 120 days in lengthy payment terms.
With MarketInvoice, you can get an advance against a single invoice as and when you need, or you can access more regular funding through our whole ledger solution.