One of the biggest worries that business owners face is the issue with their cash flow. A positive business cash flow is a sign that the business is thriving.
Cash flow comes from different sources, such as gains from investments, interest earned from savings, customer payments, and financial infusion from investors or loans. When you have a healthy cash flow, you are able to pay for raw materials or products, hire employees, pay rent, and pay for things you need to run your business.
Cash flow management strategies
Minimize the strain on the working capital of your small business with these cash flow management strategies.
1. Request a milestone payment or deposit from your customers
Several businesses, such as construction companies, PR agencies, independent marketing companies, web designers and developers, and graphic artists, need a significant amount of cash before they can deliver the product or service. Some clients won’t agree to making a milestone payment. Make this a part of your service policies, so your prospective clients understand your terms.
2. Encourage customers to pay faster
You can manage your cash flow by encouraging your customers to pay faster. Service providers usually extend 30-day credit terms to regular customers. Giving incentives to customers who pay faster will improve your cash flow position. The simplest discount is two percent if the customer pays the invoice after ten days.
3. Negotiate better payment terms from suppliers
Suppliers value the business their clients bring them, so they are sympathetic to customer financial predicaments. If you have a good rapport with your suppliers, it is easier to negotiate better payment terms. If they allow you to extend your credit, it can make a difference between business expansion and paying your employees. Try to ask for an additional 15 days to your payment terms, but see to it that you honor your new agreement.
4. Seek an alternative solution to finance your purchase order
If you are a merchandising or manufacturing company, you need a large amount of cash to meet your purchase order, which can put a huge dent in your current cash position. Brex cash account works like a bank, but the service is faster, and many of the regular charges are eliminated. You’ll be able to have more control over your cash flow and pay your supplier quickly so you can fulfill your purchase order faster and satisfy your customer’s requirements.
5. Increase your profit margins
You can make your cash flow position healthier by increasing your profit margins, especially if you are experiencing an increase in the demand for your product or service. You can either increase the price of your product or service or reduce production costs. See to it that you study this strategy carefully so regular customers will readily accept the changes.
Your cash flow provides the power to run your small business. Understand the options you have and follow sound business strategies to help you effectively manage your working capital.