Improving your cash flow
Review your cash-flow management on a regular basis and always be on the lookout for practical ways to improve cash flow.
The following tips will help you evaluate your existing cash-management system and identify actions that should improve cash flow in your business.
- Manage your banking relationship proactively.
- Increase the proportion of cash sales.
- Consider implementing a system of 'pay on invoice only', rather than sending out monthly statements.
- Speed up your invoice process and collection practices.
- Get paid for your credit sales more promptly through progress payments, payments with orders, deposits with orders and use of credit cards.
- Establish an accounts-payable policy.
- Review each step in your stock-management system.
- Evaluate ways of getting your stock on better terms, such as:
- consignment stock
- extended-credit terms
- forward-dated invoices for seasonal purchases
- discounts for prompt payments
- scheduling deliveries as late as possible.
- Evaluate whether to take a discount or to offer a discount.
- Avoid or minimise bad debts through an established credit-assessment procedure.
- Carefully assess the true benefits of 'deals'.
- Control the level of overtime worked, evaluate the use of part-time and casual staff rather than permanent staff, and negotiate payment to sales people based on results.
- Consider using sub-contractors rather than buying your own equipment.
- Consider buying used equipment.
- Rearrange annual payments, such as insurance, to times of less financial pressure or pay smaller amounts more frequently.
- Set aside cash each month to meet tax bills.
- Don't keep idle balances in accounts that do not pay interest – ensure any short-term cash surpluses are invested wisely.