In the business world, cash is king. You may anticipate large profits in
the next six months, but if you don't have enough cash coming in to cover your
expenses during that time, you may not get a chance to realize those earnings.
That's why it's important for all businesses to develop the right strategies to
maintain a healthy cash flow. The following tips can help:
1. Speed up receipt of cash.
Any steps you can take to shorten your receivables
will boost your cash flow. For instance, send out invoices immediately after
the delivery of goods or services. Another idea is to change your payment terms
- for example, from 60 days to 30 days.
Offer a small discount to customers who pay their
bills early and charge a penalty to those who pay late. Monitor your
receivables on a weekly or bi-weekly basis and follow-up with late payers when
appropriate.
Financial
tip: Offer credit carefully. Do a financial check on new
customers before offering them credit. Also ask for and check their business
references.
2. Use your business credit card. Consider using your business credit card to pay suppliers and make purchases. Learn about your card's grace
period, and take advantage of it - you may have up to 21 days after receiving
your statement to make the payment. Some cards also come with cash-back
features. Speak to your business banker about the card that's right for you.
3. Encourage use of payment cards. Depending on the nature of your business, you may want to consider
accepting credit card and debit card payments. This allows you to receive
next-day value for your sales and services, without the need to handle cheques
and make deposits.
Whether you serve customers over the counter or
online, a merchant services solution makes it easy to process payment cards.
Don't forget to compare costs when investigating a merchant services solution.
4. Analyse your cash flow. Many businesses go through cyclical highs and lows. Clothing
retailers, for example, typically have their best months in December, while
schoolbook and uniform suppliers do well in at the beginning of a school year.
A cash-flow analysis can highlight the cycles in your
business. This information can be used in many ways, such as timing your
borrowing, arranging the right amount of staffing, and boosting your marketing
efforts during lulls.
5. Work with an accountant. The services of an accountant can serve as an investment rather than
an expense. An accountant can review cash-flow projections and results, provide
insights into areas that you may have overlooked, and help you anticipate and
plan for cash-flow problems.
6. Get a line of credit. Having a
line of credit in place to cover short-term needs and emergencies is a much
more efficient way to manage your cash flow than trying to get a loan in a
hurry. Rates are competitive, you can draw from your line of credit when you
need it, and you pay interest only on the amount borrowed. Arrange for a line
of credit before you fall short.
7. Put your cash to work. A high-interest savings account for business allows you to earn a
competitive rate of interest on your cash on hand, but the funds are accessible
whenever you need them. You earn interest every day on each dollar saved, and
can withdraw the money whenever you need to.
8. Longer term financing. Consider taking a loan to purchase a piece of equipment, car, or
computer system instead of buying it outright with cash/savings. You'll free up
some cash that can be used to tide the business over when cash flow is tight.
9. Consider "continuity" sales. Another way to improve your cash flow is by offering deals on your
products or services to customers who buy for a fixed period of time. A
subscription-based product such as a newsletter or magazine is a good example
of how continuity sales work: you pay the publisher upfront for a one-year or
two-year subscription; in return, you get a better deal on the cost of the
newsletter.
Continuity sales can be made to work for almost anything. Your customers
save money on a package of goods or services, and you get the cash upfront.
10. Invest in your business. Any steps you can take to build your business, such as training staff
or boosting your marketing, can help improve cash flow.
