Positive cash flow is the lifeline of SMEs (small and medium enterprises). It is vital to supporting and raising a business. Cash flow is not just bookkeeping the amount of money coming in and going out of a business. SMEs can save money by adopting the strategic approach to control cash flow. This saved money can be invested in new markets and products from the bookkeeping. Loans can be paid off by controlling cash flow. SMEs will be in a much stronger situation with positive cash flow and can easily attract financiers and lenders with attractive funding conditions and at more excellent discount rates.
Steps to Positive Cash Flow
Targets for Cash Flow
Set targets for positive cash flow. Generate a forecast and update it every week to have better control over cash flow. Andrew Jhonson, a financial advisor, states that controlling the creditor’s setting is vital for the attention, satisfaction level, and ownership to succeed and rise. Bookkeeping of incoming and outgoing cash should be implemented to have better control.
Payment Terms are Clear
It is crucial for controlling cash flow to have clear terms for payment. It determines when and how you will be paid without delay. The National Specialist Construction Council CEO, Suzanne Nichol, pointed out that if the company doesn’t keep a record of overdue payments, they will not manage the cash flow.
Invoice Promptly
Pay invoices promptly to have positive cash flow in SMEs. Marion Thomson advised clearing invoices as soon as possible. Sending invoices through emails is more efficient as they are delivered quickly and automatically recorded in the emails. Bookkeeping will help you look at all of the transaction history.
Easy Payments for Customers
Payment schedules should facilitate the customer as much as possible. Thomson advises. “Try to avoid being paid by check as it will result in a delay before the money arrives in your bank account,” she says. “Online payments are a much better option.”
Offer Clients Payment Packages at Fixed Rates
To ensure positive and more substantial cash flow in SMEs, offer payment packages at fixed alerts and periodic intervals.
Establish Payment Schedules to Minimize Debtor Days
Many SMEs practice a long duration of payment and invoicing. It should be minimized to manage cash flow effectively.
Manage Cash Flow by Utilizing Technology
Cash flow management becomes relatively easy if we use technology. Entrepreneurs with limited management time have developed and adopted many accounting software programs.
Focusing on Cash Flow Rather than on Profit
Your profit will be in order if your cash flow is in order. “A lot of new businesses do not make it past six months. They might have been a profitable business eventually, but they need to have a good cash flow to survive,” Agnes Cserahti says. She estimated that 90% of SMEs never planned cash flow, though they have many years’ profit forecasts. It is one of the primary reasons for failure in an early stage of business.
The new business should work with reliable clients who pay quickly.
Training Employees Regarding Cash Flow Monitoring
For example, a few SMEs, Manchester-based Ratio Law LLP, assign a devoted individual to follow the money coming in and going out. Staff training regarding positive cash flow management and bookkeeping should be scheduled to get optimum benefits.
Keep Bank Informed
Your bank can suggest helpful business services—for example, overdrafts and credit, mainly when they are starting. So you must be well aware of these services.
Conclusion
Clear payment terms and email invoicing are essential for positive cash flow. Following all of these points will ensure your success as an SME.
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