Top Fixes for Business Cash Flow Problems
BY: VESELINA DZHINGAROVA ON FRIDAY, AUGUST 05, 2016
Poor cash flow can seriously hamper a business. The business may be growing and the order book is overflowing, but if a few customers are late paying or an unexpected expense crops up, your cash flow could dry up. When this happens, you could have a problem paying your own bills.
Cash flow problems on a personal level are easy to fix. All you have to do is arrange a temporary overdraft or take out a payday loan to cover the bills until you get paid. As a business owner, it is not quite as simple.
Negative cash flow affects most small businesses at one time or another, especially during the early years. If handled correctly, cash flow needn’t scupper your business, so here are some quick fixes to keep the cash flowing through your business.
Cash Flow Forecasts
Cash flow forecasts are essential for all businesses. You need to produce cash flow forecasts at regular intervals, preferably at least once a month. Cash flow forecasts help you predict problems ahead. You can see when there might be a surplus of cash, and when there are some large invoices due for payment. Compare your cash flow forecasts with actual figures after the event to gain extra insights.
Perform Credit Checks
Never accept a large order from a new customer without performing a credit check. Even established businesses can fall foul of this one. Checking a customer’s credit will reassure you that they have the means to pay and that there isn’t a bunch of creditors chasing them.
Ask for Money Up Front
It is not unreasonable to ask for a percentage of the invoice up front. Small businesses often experience cash flow problems when they take on a large order. They have to buy materials or pay expenses up front, but don’t receive any payment for several months. Consider asking for 25% or 50% as a down payment. Any reasonable customer will not have a problem with this request – and if they do, it is a red flag.
Accept Card Payments
Invoicing customers for a job is common, but having to wait for customers to pay their invoices 28 days or more after the work has been completed can put your cash flow in jeopardy. Instead, look at introducing card payments so customers can pay via credit card. The money hits your account within a few days and the customer can still enjoy extended credit via their card company. Everyone’s a winner.
Raise Your Prices
If you have lots of orders but your profit margins are low, it is time to put your prices up. The extra money coming in will give you a larger cash cushion in the bank, which provides protection against cash flow problems further down the line.
Keep a close eye on accounts receivable. As soon as an invoice becomes overdue, send out a polite reminder letter. Never underestimate the importance of positive cash flow. If left unchecked, cash flow problems will cripple your business.
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