Determining your cash flow status and maintaining that cash flow, or even improving cash flow, is critical for small businesses. Your cash flow is the net amount of cash coming in and going out of the company, which determines how much available cash the business has at any given time. Through the course of business operations, companies should be able to sustain positive cash flows to maintain success. Inflows to the business include revenue and income from expenses, while outflows include any expenses and debt repayments.
Creating positive cash flow will ultimately help businesses avoid financial pitfalls, unnecessary debt, and not being able to make payments. Here are a few strategies for improving cash flow in your business.
1. Be Proactive and Plan for Future Needs.
Even profitable businesses can experience cash flow problems if their payments are due before revenue and income streams come in. By keeping accurate and timely financial records, businesses can create a forecast of future expenses and debt payments to anticipate the state of cash flow and where they may need to make changes to stay positive. If you are expecting a cash flow struggle based on historical trends, you can start preparing and talking with lenders ahead of time as well as planning your other expenses accordingly.
2. Improve Accounts Receivable and Accounts Payable Processes.
Your accounts receivable, or the money you receive from customer invoices, can be better managed to decrease the time it takes to get paid. An unpaid invoice is an easy way to decrease your positive cash flow and not be prepared to pay your expenses. One way to help combat this is by offering a slight discount to customers to pay their invoices early. Additionally, the more payment options you can offer the better. While some options may include small processing fees, the easier it is for your clients or customers to pay, the faster you will get your money.
Your accounts payable process is just as important. Ensure that your accounting team is aware of which invoices are a priority and get them paid right away. Software that helps manage these processes can streamline the process and help avoid missed invoices. On top of that, as you develop strong relationships with your vendors, you may be able to negotiate longer payment terms, so you have more time to get money in before having to pay.
3. Use Electronic Payments.
By taking advantage of electronic payments, you give yourself a much longer period to pay as you can submit electronic payments the day of a due date. If you can’t make the electronic payment on the due date, some business credit cards offer grace periods of up to 21 days but be careful not to use this too loosely as it can cause you to add up debt.
4. Get a High-Yield Savings Account.
First, high-yield savings accounts often have interest rates that are significantly higher than the national average, which allows you to build up a reserve of funds that grows as you contribute. The reason this type of account can be beneficial to your cash flow is because it is a very liquid asset and can be easily converted into cash quickly and without additional cost.
5. Raise Your Prices.
We know that raising prices can be scary and you may worry that you might lose customers — however, you will never know how much customers are willing to pay for your products or services if you don’t experiment with adjusting your prices. It doesn’t necessarily have to be a large jump either — start with small incremental price increases and adjust as needed. Most consumers are used to goods and services changing in price as most businesses have to do it at some point with inflation and other economic factors, so its not likely to tank your customer base by a large margin and can significantly increase your cash flow.
If you are struggling with cash flow or are looking for advice on additional ways for improving cash flow to maintain a healthy financial foundation, your expert bankers and financial advisors at Republic Bank are one call away. Reach us at 800-526-9127 and find additional financial tips in our library of resources.