6 Tips to Effectively Manage Cash Flow in Your Growing Business

Cash flow is extremely important to companies to stay in the best of financial health and away from niggling operational worries. But it is easier said than done.

Cash flow becomes an issue when income that a business generates cannot keep up with the expenses that it incurs.  In other words a company is spending more than what it is earning. This problem usually arises when the business gets paid at a later date after delivering the services or products, and as a result finds it difficult to meet operational expenses.

Cash flow difficulties also arise when there are unforeseen emergencies or a seasonal lull that throws your sales and income for a toss.

As far as businesses are concerned, cash is king and there is no way that you can overlook something that is so important to the day-to-day working of your venture.

Here are a few tips for you to meet immediate cash flow needs and ensure that there is no operational hiccups in the smooth functioning of your small business.

1) Be Sure About Invoicing

Accurate and timely invoices will help you get paid, and though this may sound easy it is not so.

Generating accurate invoices on time is important because many a time you are so caught up in the nitty-gritties of running a business that you miss sending invoices as soon as projects are completed, or services/goods are delivered.

In addition to accurate and timely invoicing, judicious follow up is also required to ensure that you get paid on time. There are invoicing software that allow you to automate invoices and track payments. Payment reminders can also be automated and you can send customized messages and thank you notes on getting paid as well.

Some invoicing software packages are free and if you have a big business with advanced needs, you can choose the pricier variants.

2) Vet Customer Payment History

It is always recommended that you vet your customer’s payment history before offering a line of credit or shipping large amounts of goods without taking any advance.

If a customer inordinately delays payment you will have to take recourse to more expensive legal options. It is also beneficial that you stop dealing with dubious customers who always leave you high and dry, and streamline your customer base to reliable and bankable names who will save you unnecessary headache later on.

Always perform credit checks on new non-cash customers and ensure that they have a clean payment track record.

3) Request for Multiple-Stage Payments

If you are executing a big order or working on a huge and time-consuming project it will help if you set a multiple-stage payment system. This will help you recover costs as you run along and will not create a cash crunch as when you have to wait for a long time to get paid.

Another option is to ask for a partial advance payment and raise the remaining invoice after the goods are shipped or when project is completed.

4) Be Careful with a Business Credit Card

Credit cards are always tricky and if you do not pay off in full each time it will result in a vortex of increasing debt that will suck you in no time.

You can use credit card to make a payment because it frees up your cash for other purposes but do it only of you are sure that you will be able to pay off the amount in full before the due date.

5) Ensure You Have Help on Rainy Days

All businesses go through periods of lumpy cash flow at some point in time or the other. The key is that you stay prepared and are not caught unawares when a slump hits your business.

Have at least two lines of credit in place. You can have a line of credit based on some of the assets you own and another on business collaterals like accounts payable or inventory.

Business lines of credit work perfectly when you need to meet short-term financing needs or tide over seasonal slumps. It provides a very handy cushion of cash when you are suddenly facing unexpected difficulty in meeting operational expenses. For these very same reasons business line of credit is also called operating line of credit.

Make sure that you always repay on time and do not cross your borrowing limit because this will result in significantly higher interest rates.

6) Think of Factoring

Factoring helps you leverage accounts receivable and raise funds. You essentially sell invoices at a discount and get quick access to much-needed cash.

Factoring is a short-term option and most companies do not resort to it for more than a period of two years. As opposed to traditional financing the interest rates are on the higher side but factoring is without doubt a great option for growing businesses that do not qualify for a bank loan. Many factors also help clients with accounting work and generate financial reports to help client assess business performance.

Factoring enables businesses to expand and take on new clients without worrying about unpaid bills. You also are able to take advantage of full or early payment discounts that suppliers or vendors may offer.

Factoring does not put you in debt because you are selling an asset, here invoices, to raise capital. It is a popular cash-management tool and is used by businesses in every industry where long receivables are a part of business cycle.

It is important you choose your factor carefully. Your accounts receivable factoring San Diego service should be familiar with your industry and understand how your business works. Also many factors offer customized service packages for clients based on their unique needs which will help you get a solution tailor-made for you.

Conclusion

Expert cash management is one of the hallmarks of a successful business. Great businesses are spot on with their cash-flow management practices. As your small business expands there will be a million things demanding your attention, but cash flow is something from which you cannot afford to take your eyes off. Make use of smart cash-management solutions and you will have a business capable of taking care of itself.