Your Business Experiencing a Money Crunch? Tips for Improving Cash Flow

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It takes money to run a business—there is inventory, payment to vendors for goods and services you need to operate, marketing and employee salaries to name a few necessities. Having a steady flow of cash to tend to all of these financial responsibilities is crucial, but an issue that many small businesses may struggle with. The good news is, more cash is probably available to you than you realize, you just need to take a hard look at your operation to see where it is getting tied up. Here are some tips to get your business its much need cash infusion.

Negotiate Longer Terms with Your Vendors

When looking to improve cash flow, it is a good idea to turn your attention towards your accounts payable. You want to hold onto your money as long as possible and a great way to do this is extending payment terms with your vendors—this is especially helpful if your payment terms and the payment terms you are extending to customers are not quite gelling when it comes to available cash. By extending your terms, you have more time to receive customer payments and you can play around a bit with the money used to pay vendors without jeopardizing timely payments.

Establish a Line of Credit

A revolving line of credit can be a great way to help you out when you are in a financial bind. It is important to use it responsibly however, and evaluate terms carefully. Favorable conditions include finance charges being more favorable than a vendor’s fee for late payments or early payment discounts netting you more money than the lender’s finance charges.

Improve Management of Receivables

Poor receivables management is no friend to improving cash flow. First things first, make sure you are using a good accounting software program to help you input and manage invoices. Offer incentives for early payment and offer as many payment options for customers as you can. Stay on top of invoices and follow up on late payments immediately, not weeks later—when businesses are struggling financially, prioritizing payments based on the aggressiveness of vendors in collecting past due invoices is common. Getting on late payments early makes you a priority. Establish a process for dealing with past due accounts and be consistent with it.

Carefully Evaluate Inventory

Careful evaluation of inventory and how it is moving is important in improving cash flow.  See which items are moving quickly and which ones are moving fast. Concentrate on stocking the fast-moving items that will bring a faster cash infusion. Regularly monitor your stock levels to make sure you are not buying things that you really do not need to buy right now.

Establish a Savings Fund

The idea of putting money aside so it is there when you hit a financial rough patch is not just sound advice for individuals, but businesses as well. Establish a fund that you can draw on when cash flow is low. It may be tempting to do something else with the money, but when you hit a rough spot, you will be glad it is there.

Consider Receivables Funding

If you are really hurting for cash, you might want to learn more about the receivable funding process; this gives you the opportunity to sell your receivables to a financing company for immediate cash. Of course, this comes with a fee so you have to decide if getting that cash right now is worth getting paid less than the true value of the invoice later.

Kelli Cooper is a freelance writer who covers all things business.

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