Tips: Improving your cash flow
When it comes to running a business, cash flow can impact about every aspect of your business. Experts say the rules of cash flow are simple: a business is successful only if the cash it generates exceeds the cash it consumes.
Here are a few tips to help you optimise cash flow management, and ultimately improve your financial position this year.
Be proactive about collecting payments
Payment collection is a challenge for all small businesses. Slow or late payments compromise cash flow and can cause businesses to come up short on funds.
Business analysts say delayed payments are the worst enemy of any business. By decreasing your collection period, you can avoid cash crunches and enjoy better cash flow, allowing you to invest in other businesses. While managing your collection period may sound complicated, it can be as simple as ensuring invoices are sent correctly and promptly.
Former chairperson of Necas Network of Entrepreneurial Women (NNEW), Abuja Chapter, Mrs Omololami Ajani, speaking on cash flows in business, said business owners must find ways to recover debt to increase cash flow. “When clients are owing you, you must find a way of getting your money back. If you cannot tell them verbally, do a letter and package it well and send to them. You must find a way of recovering your funds if not the business will fold-up.”
Time payments for accurate cash positions Revenue deductions more
If your customers are taking longer to pay, consider adjusting your forecast accordingly and pushing back your own payments to suppliers to compensate. Set up payment alerts to ensure that you are paying and being paid on time. Text and email alerts are a great way to keep up on all your transactions. If you are selling a product, your actual versus projected revenue may vary based on the channel through which it is sold. For example, selling through a distributor may result in lower revenue (due to higher fees) than selling directly. Keep your cash flow projections on point by taking into account any deductions you may have from third-party sellers. Reach out to your third-party partners on a regular basis to discuss and negotiate cost savings that might exist.
Negotiate your payment terms
Did you know that your payment terms with suppliers can be negotiable? Many vendors and suppliers provide financial incentives or discounts for early payment. Negotiate your payment terms so that they align with your collection terms, and structure your payment strategy to maximize discounts.
Mrs Ajani says always be prepared to negotiate. “Always ask for discount no matter how small. This will turn out to boost your income at the end of the day.”