Some companies carefully monitor and manage cash flow, and as a result are more successful in the long run. Here are some tips for managing cash flow that will keep your company running in a profitable way.
Micromanage Your Accounts Receivable
All the sales and services around the globe are valueless if your customers do not pay for them. Ensure that you have a firm plan in place for pricing, invoicing, and ultimately collecting payment for sales or services rendered. If your business contracts work to clients consider requiring a down payment; this will allow you to start work, while the client funds the start of the project.
As well, you must consider requiring payment in full upon completion of a sale or service, rather than allowing too much latitude for payments. This will accelerate payments to your company, and leave you in a better position to deal with your accounts payable, and make it easier to find out your profits.
Set Good Terms with Your Vendors
Once you set up good terms with your clients for cash inflows, you have to deal with your outflows. Negotiate good terms with all of your vendors, who provide the inputs to your work. Try to get the best terms and the most scope with your payables as possible.
Preferably, you want your payment terms to be as moderate as possible; this will help eliminate pressure on your company when payments from your customers come later than expected.
Build a Cash Reserve
No matter how doing well your business is, it is unavoidably going to experience cash shortfalls from time to time. Clients are going to pay late or fail to pay in some cases, and bills are going to come due sooner or later.
Maintaining a cash reserve to cover expenses is prudent, especially for a startup. If your business is getting ready to open its doors, try to begin with some cash in the bank to start with. This can take some of the stress on the cash flow of your business over the first few months.
While managing cash flow is a challenge for any business, keeping track of it is easier than ever. There are all kinds of accounting software and services available to do this, and it is easier than ever to download a cash flow spreadsheet and put it to work immediately. So don’t work hard away on an old ledger book, let technology do the work for you.