Business tips from the Finally Fast team
As businesses are still struggling to crawl out of the recession, entrepreneurs are searching for methods to generate as much cash flow out of their businesses as possible. Their basic approach is to acquire their receivables as quickly as possible and slow down their payables, yet avoid jeopardizing relationship with suppliers. For some businesses this means collecting from your customers as much as seventeen days, or stretching your payables an additional ten days. Other companies have even extended their accounts payable periods with a credit card. But there are better ways to improve your cash flow; here are five tips to get you started.
Generate a Forecast
Before you make any adjustments to your business practices to improve your cash flow, you need to generate a Forecast in order to determine where your cash flow currently stands and where it may go in the future. These will also hap you determine some secondary necessities. For example, will more sales for your business require more employees and a larger inventory? Generate a rolling twelve-month forecast in order to see where to expect surges in expenses and examine your bill payments.
Reevaluate Your Terms
One way to improve cash flow is to analyze the balance between your customer terms and your supplier terms. Look at the terms you’re offering to customers and determine if they still work for you and how well your customers are performing according to those terms. When it comes to supplier terms, you’re going to want to see how their terms compare to their competition. And be sure to keep an eye out for discounts for early payment.
Segment Your Inventory, Customers, and Suppliers
Another technique is to segment Your Inventory, Customers, and Suppliers. When reviewing your inventory, consider the impact of your sales. One thing to watch out for is having too much of your cash tied up in inventory that only sells sporadically. This cash should be invested in items with comparably quicker turnover. Next, segment your suppliers, separating them into regular suppliers and one-off buys. The better terms and discounts will come from negotiating with the regular suppliers. Finally, take a good look at whom your “key customers” are. Are they as valuable as everyone believes them to be? Are they paying you when you need them to pay you?
Improve your Collection System
Next, you need to improve your collection system. Evaluate how long it’s taking for your business to get paid, your collections activity, your customer contact, and any past disputes. Is your company keeping up on all of these? What do you do to enforce discipline when a payment is late?
Make Improving Cash Flow Everyone’s Problem
Finally, make improving cash flow everyone’s problem. For example, in order to get your sales staff on board, institute a policy where if something is written off, the revenue is backed out of commissions.