Whether your business is developing or going through tough times, managing cash flow is vital and, for many, the key to business subsistence. You’ve perhaps heard that over 40 percent of businesses that go broke are profitable but run out of cash.
From a cash perspective, a business is like a sponge — it sucks in snowballing amounts of cash, and, to get money out of it, you have to give it a good squash. If you cannot manage the business, the sponge will grow bigger with each squeeze, making it challenging to keep it in your hand. Successfully managing your cash flow will ensure your business stays on track to achieve its objectives. Here are some ways to do that.
Set Business Cash Flow Targets
Preparing and maintaining a cash flow forecast is a great way to understand the money flow in your business. The forecast should be regularly updated to reflect the business’s performance accurately. Set specific targets for credit controllers that will encourage them to work hard to achieve them and, as a result, will maintain a positive cash flow for your business.
Set Clear Payment Terms
Businesses dealing with credit are often more vulnerable to declining cash flows because of late payments or other issues. They must regularly set transparent and standardized payment terms and plans to meet business cash flow targets.
Even businesses that only occasionally deal with credit should have a payment plan. If you are unsure about the payment terms, it will be hard for your employees and creditors to access the right time to pay correctly. The payments will be delayed, which ultimately means a decrease in cash flow.
Thirty days is generally considered an excellent time to pay for many businesses. However, based on the type of business and market situation, you can set your terms and conditions.
Generate Quick Invoices
Specific factors to improve the cash flow of your business are in your own hands. If you are efficient, the cash flow will likely be positive. Invoicing your clients is one of the deciding factors; the sooner you do it, the better. Typically, a client will take a week or two to clear the generated invoice, and if it is delivered late, you must expect a further delay. Therefore, set up an automated bookkeeping system that automatically generates and sends invoices on time to prevent any adverse effects on your business cash flow.
Install Easy Payment Options
Offer your clients the quickest and easiest ways to pay you. Online payments are a better option than checks as they take longer to show up in your bank account. Linking your bank account with accounting software will make it easier to track cleared and pending payments. It also allows for quick transfers, as banks already have the information to ensure a safe transaction.
Use Technology
Cloud-based accounting software is a great time saver for businesses, as it has brought efficiency to almost every business function. Tracking the cash flow of your business is just a click away with the help of this software. Depending on your needs, you can see, filter, and prioritize credit payments from anywhere.
The ease of accessibility offered through these cloud-based accounting services is unmatched. The data is automatically backed up, so you don’t have to worry about loss or theft. The fact that everyone in your company has access to all of the information at their convenience speeds up the overall process.
Using technology in your business operations, you will observe that the cash flow has also increased considerably.
Conclusion
In conclusion, efficient cash flow management is crucial for business survival. Like a sponge, a business absorbs cash and requires careful handling. Setting targets, clear payment terms, quick invoicing, easy payment options, and leveraging technology are essential strategies. With these practices, businesses can maintain positive cash flow, navigate challenges, and stay on track toward their objectives. Embracing technology not only enhances accessibility but also contributes to significant improvements in overall cash flow.
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