Managing cash flow is one of the most important tasks of any entrepreneur. Sometimes problems arise when clients delay payments and at the same time you need capital for supplies, equipment, employee salaries, and other expenses. Here are some tips on how to stabilize your business cash flow so you can easily handle these situations.
Make Cash Flow Projections
Preparing cash flow projections for the coming week, month, and quarter enables you to anticipate difficulties before they arise. Draw up these estimated financial forecasts based on the payment histories of your clients and upcoming expenses. Be sure to factor in details such as fluctuating seasonal sales, the payment terms of your vendors, rent, taxes, and interest on loans. Gather input from your financial department, salespeople, credit workers, and anyone else who handles company funds.
Cash flow problems often stem from late-paying customers. To keep these to a minimum, run credit checks on new clients who request payment terms. Require deposits in advance, and deliver invoices as soon as goods are delivered or services are completed. If payments are late, contact the customer immediately. For habitually slow-paying clients, establish a policy of cash on delivery. Consider rewarding customers who pay their bills early with discounts.
Pay Bills Wisely
When expenses exceed profits, it’s time to examine your payables closely and cut costs. Analyze the terms of your vendors and other creditors, and make bill payments on the final due days so that you maintain control of your capital as long as you can. Select vendors not only for their reasonable prices, but also the flexibility of their payment terms. Cultivate good relationships with your vendors, so that if you need to delay a payment, you can rely on their forbearance.
Prepare for Shortfalls
Although you may carefully manage your cash flow, unexpected shortfalls often occur. Prepare for such difficulties by arranging for a line of credit with a financial institution while your company is doing well. Suppliers often allow extended terms if you are generally a good customer. Alternatively, consider factoring your receivables as a quick method of obtaining needed capital.
For more advice on managing cash flow, contact Black Wolf Capital Group.