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. From the bookkeeping, this saved money can be invested in new markets and products. 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 greater discount rates.
Steps to Positive Cash Flow
1. Targets for Cash Flow
Set targets for positive cash flow. Generate a forecast and update it on a weekly basis to have better control over cash flow. Andrew Jhonson, a financial advisor, states that controlling the creditors setting is important for the attention, satisfaction level, and ownership to succeed and rise. Bookkeeping of incoming and outgoing cash should be implemented to have better control.
2. Payment Terms are Clear
It is crucial for controlling cash flow to have clear terms for payment. This determines when and how will you be paid without delay. The CEO at the National Specialist Construction Council, Suzanne Nichol, pointed out that if the company doesn’t keep record of overdue payment, they will not be able to manage the cash flow.
3. Invoice Promptly
Pay invoices promptly to have positive cash flow in SMEs. Marion Thomson advised to clear invoices as soon as possible. Sending invoices through emails is a more efficient way as it is delivered quickly and it’s automatically recorded in the sent mails. Bookkeeping will help you to have a look at all of the transaction history.
4. 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 delay before the money arrives in your bank account,” she says. “Online payments are a much better option.”
5. Offer Clients Payment Packages at Fixed Rates
To ensure positive and stronger cash flow in SMEs, offer payment packages at fixed alerts and at periodic intervals.
6. Establish Payment Schedules to Minimize Debtor Days
Many SMEs practice a long duration of payment and invoicing. This should be minimized to manage cash flow effectively.
7. Manage Cash Flow by Utilizing Technology
Cash flow management becomes quite easy if we use technology. Many accounting softwares have been developed and adopted by entrepreneurs who have limited time for management.
8. Focusing on Cash Flow Rather than on Profit
If your cash flow is in order, your profit will be 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 for cash flow, though they have profit forecasts of many years. This is one of the major reasons for failure in an early stage of business.
New business should work with clients who are reliable and who pay quickly.
9. Training Employees Regarding Cash Flow Monitoring
Few SME’s, for example, Manchester-based Ratio Law LLP, assign a devoted individual to follow the money coming in and going out. Training of staff regarding positive cash flow management and bookkeeping should be scheduled to get optimum benefits.
10. Keep Bank Informed
Your bank can suggest business helpful services. For example: overdrafts and credit, mainly when they are starting out. So you must be well aware of these services.
Having clear payment terms and invoicing through emails are two of the important steps mentioned above to create a positive cash flow. Following all of these points will ensure your success as an SME.
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