Being a small business owner can be highly rewarding however, it can also be extremely stressful. As a small business owner myself I have personally experienced and also heard many horror stories relating to poor cash flow management. Inconsistent cash flows can place significant stress on business owners who are trying to balance work flow, customer expectations, human resources, supplier relationships and payroll to name a selected few. With all this in mind I have come up with 5 simple tips that if implemented will improve your cash flows and alleviate some of your stress.
1) Prompt Invoice Processing
This may seem simple but in order to get paid faster you need to issue your invoices in a prompt manner. There is no value sitting on invoices until the end of month or quarter or until you have enough volume to issue them with speedy economies of scale. Issuing your invoices promptly upon job completion will significantly reduce your debtor days and increase cash flow.
2) Payment Terms & Credit
Be strict with you payment terms and follow up debtors upon the due date of an invoice, remember the squeaky wheel gets the most grease.
3) Risk Mitigation
Limit you risk, when you receive a large job be sure to create progress payments tied to completion stages or time periods. This practice will not only ensure your receive regular payments but will also assist you limit your debtor risk should a debtor become overdue. Don’t be afraid to stop work with a debtor if their current debt exceed your acceptable levels, in these cases liaise with them and inform them that you will no longer be able to supply them with you service/product until their account has been settled. Creating these boundaries early with suppliers will significantly help your ongoing relationships.
NOTE: If you need help with your Business Cash Flows why not arrange a FREE 45 minute “Business Cash Flow Reinvention” consultation with our Managing Director Brent Cain CPA?
4) Inventory Holdings
Rationalise your inventory holdings, whilst you may receive discounts when buying in bulk you will need to balance that with the likelihood of obsolete stock. There is no point holding years’ worth of stock on your books if you can avoid it. Cash tied up in inventory is cash not available for growth and further developments.
5) Creditor Days
Look into extending your creditor days out as far as possible. Utilise organisations that will offer you interest free terms. Many suppliers will allow you access to interest free trade accounts and with some negotiations you may be able to extend these out to 60 – 90 days. You can further extend these purchases by settling your accounts using a corporate credit card with interest free days. Be sure however, to pay your credit card off completely before its due date to avoid interest charges.
Founder & Managing Director