Why Your Company Needs Solid Cash Flow
Cash flow is the lifeblood of a business, and steady cash flow is integral to a company’s stability and growth. When cash flow is impeded, businesses often founder and fail. Here are some ways to keep your company strong and productive with solid cash flow.
Reliable income is essential for healthy cash flow. To make purchases easier for customers, consider implementing subscription sales or layaway sales programs. Encourage clients to honor their invoices early by offering discounts to those who pay promptly. Conversely, charge interest to late paying customers. To avoid the possibility of losses on large and custom orders, request security deposits or have contracts that stipulate incremental payments at various stages of the work. For customers that are exceedingly tardy with their payments, you may have to contract with a collection agency to go after their unpaid accounts receivables.
No matter how much income you generate, to maintain healthy cash flow you have to keep expenses down as well. For instance, when you need equipment, search for quality used items instead of new. Rather than replace defective machinery and vehicles, repair them. Don’t feel you need to upgrade electronic devices whenever new versions come out unless the old ones are no longer adequate to do their jobs. Negotiate favorable payment terms with your vendors so that you hold onto your cash as long as possible.
Have Options for Emergencies
Despite aggressive cash flow management, sometimes shortfalls occur. For these circumstances, it’s wise to have contingency methods available for obtaining needed funds. One option is a line of credit using your accounts receivables or inventory as collateral. Financial institutions generally allow you to borrow up to 80 percent of the value of your accounts receivables and 50 percent of the value of your inventory. Alternatively, consider selling your accounts receivables to a factoring company, which advances you 75 to 80 percent of their value and then sends you the balance minus a fee upon collection of the invoices.
For more advice on maintaining healthy cash flow, contact Prime Start Capital.