How you can increase cash flow in 5 simple steps.
According to a survey from the Discover Small Business Watch, “47% of small business owners have experienced cash flow problems over the last 90 days.”
The best way to increase cash flow is to collect your money owed as quickly as possible!
Ideally you need to quickly collect what you are owed without ruining the relationship that you have with your customer. Focusing on reducing your outgoings and spending will help you too.
Here are 5 simple steps that you can take each day to improve and increase your cashflow.
1. Get a grip on your cash flow
Start by evaluating what you are owed, what is due in and what is due to go out. Sometimes a simple spreadsheet where you can this information is the easiest way to begin.
You need to design and set a weekly routine that you stick to over the next 12 months. Doing this will effectively allow you to plan for when payments are due in or out. This will prepare you in advance.
2. Assess Your Payment Terms
If your company payment terms are long, ie over 30 days, you could look at reducing them. By reducing them to seven days or even getting a part payment upfront will increase your cash flow.
Clearly list your payment terms on all invoices.
An example “Thank you, we really appreciate your business. Please send your payment within 14 days of receiving this invoice.”
If you want to add something extra that can improve your chances further you could say, “Thank you for your business. We do expect payment within 14 days, so please process this invoice within that time. There will be a 1.5% interest charge per month on late invoices.”
Make sure that you are offering your customers a variety of payment methods like bacs, stripe, card payments and paypal. This will ensure that payments can be made easily by your customers.
3. Enforce payment policies and processes as if your life depended on them!
If you don’t have your own payment policy or credit control policy to follow, it’s time for you to put one in place. To be consistent throughout your company ensure that your employees are aware of the policies that you have in place.
What is your policy regarding non-payment? Do you make a set amount of calls? Do you send a set number of reminders? At what point do you enlist a Debt collection agency’s help?
4. Evaluate your customers.
the Pareto Principle (also known as the 80/20 rule)
20% of your customers will usually owe 80% of the debt. By arranging your overdue debt in order of the greatest value, you can begin to work out which customers owe you the most money. Once you know this, you can focus on collecting the debt owed from them first.
By using the Pareto Principle, you will increase cash flow quicker than you would than by focusing on the 80% who owe smaller amounts.
5. Reduce your expenses and overheads
Often expensive ongoing monthly overheads play a key role in creating a “negative cash flow!”
Start by listing all of your out-goings. From here work through each one to find a way to reduce them. Sometimes calling your provider and asking for a reduction will work. If you don’t ask you wont know if you are getting the very best deals.
Work out ways to cut down on stationary costs, unnecessary staff overtime, electricity and other overheads.
It may take you a few hours and a few call centres to deal with, but it could be worth it.
IN SUMMARY
There are always ways to improve cash flow. You need to set that time aside, take action and take control.
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