Cash flow management is as crucial to a business as breathing is to a person.
No matter how much money you generate then you spend, if you don’t have it when you need it, your firm might swiftly come to a grinding halt.
If that isn’t enough, managing cash flow isn’t straightforward. There are a lot of techniques, strategies, and tactics out there. Which ones should you focus on? Which ones will be significant?
This quick reference will go over 12 of the best cash flow management strategies you can employ to protect and grow your company.
What is Cash Flow Management?
The process of monitoring, evaluating, and optimizing money entering into and out of your business is known as cash flow management.
- Positive cash flow: When the money entering the business from sources like sales, investments, and accounts receivable is greater than the money leaving the firm in the form of vendor costs, employee salaries, overhead costs, etc., the business is said to have positive cash flow.
- Negative cash flow: It occurs when the amount of money leaving the company exceeds the amount coming in. Negative cash flow companies need to act immediately to fix the problem.
Understanding that rapid sales growth alone won’t produce a positive cash flow is crucial.
There are mainly four critical strategies you can employ to increase cash flow:
- Increase income
- Cut spending
- Receive payments quickly
- Make payments slowly
12 Cash Flow Management Strategies
1. Utilize management software to do the counting:
Small firms may be able to manage their cash flow with the help of a straightforward spreadsheet if they have a limited number of expenses and payments coming in. Nevertheless, small and medium-sized businesses will undoubtedly require a more comprehensive and adaptable tool.
The good news is that a wealth of software is available to assist with cash flow management. Purchasing smart cash flow management software is the first step toward better cash flow management.
2. Keep an eye on your finances:
You need to have control of your funds to optimize cash flow. Maintain thorough and accurate bookkeeping and routinely assess your financial situation. Once you have a firm understanding of your company’s finances, you can look for strategies to enhance cash flow.
3. Change Your Pricing
It may appear frightening, significantly when raising your rates can result in a direct fall in sales. If you make the appropriate changes, you can enhance your cash flow. If your company struggles with cash flow, you might reconsider pricing to ensure your margins are sustainable.
So, spend some time doing A/B testing to establish the optimum price point for your product.
4. Send Better Invoices Right Away
Sending your invoices immediately will help you be paid more quickly and maintain a steady cash flow. A precise due date should be provided to customers, and the amount of time you offer them to pay should be reasonable. Don’t let anything slide; always follow up on overdue payments.
Again, effective software can help you keep track of all your invoices and their status, so you don’t get mired in a mass of unsorted invoices.
5. Make It More Convenient to Get Paid
When it comes to invoicing, one approach to increase the cash flow is to make it simple for your customers to pay. In order to obtain your cash with the minimal possible inconvenience for your clients, it’s critical that customers can make quick, secure payments.
You can achieve this by providing them with a range of online payment options, such as credit cards, PayPal, or bank transfers. You’re more likely to receive payment sooner if you give your consumer more payment options.
6. Provide Reductions for Early Payments
Offering discounts for early payments is another way to speed up payment. Doing this creates a win-win scenario: If a customer has a healthy cash flow, they can pay in advance and receive a discount, increasing your company’s cash flow in the process.
You might also do the opposite and impose penalties for late payments. These penalties may lessen the impact that late payments have on cash flow.
7. Instead of Purchasing, Consider Leasing
Therefore, consider leasing it to expand the cost over time rather than purchasing something outright. Even though you could pay more, the advantages to your cash flow might make the extra expenditures worthwhile.
8. Sell or Lease Assets
If your company is facing a negative cash flow, you could choose to lease or even sell any property, vehicles, or equipment that isn’t being used to assist turn things around.
You could even sell assets currently in use and then lease them back to free up capital.
9. Improve Your Inventory Management
It’s critical to correctly manage your inventory to increase cash flow.
The quantity of capital tied up in stored goods should be kept to a minimum. However, you must strike a balance because you must ensure you have enough inventory to fill requests rapidly.
Check your inventory. Keep a careful eye on your inventory and search for ways to streamline. Make a list of the products you purchase that aren’t selling as quickly as your other items. They cause significant cash flow issues.
Get rid of it even if you have to sell it at a loss instead of purchasing more of what isn’t selling. Be objective, not impulsive.
10. Cut Your Expenses
It might seem apparent, but keeping a healthy cash flow means cutting back on unnecessary expenditures. But before you can make wise adjustments, you must be fully aware of your spending patterns and where your money is going.
It’s crucial to understand your company’s overall revenue balance and to have a breakdown of the total inflow and outflow.
You could use this information to create a budget, identify areas where you can save money, and ensure you have enough cash to keep your firm operating.
11. Perform Credit Checks on Customers
Be careful to conduct a credit check on a client if they won’t pay you in cash, especially before you sign them up. You can expect the client won’t be paying you on time if they have bad credit.
The late payments will affect your company’s cash flow no matter how much you might desire to close the sale. Be sure to set it up with a high-interest rate if you decide to go through with a sale despite having doubts about your credit.
12. Consult an Expert
You are not required to be a financial expert in order to run a small business or be an entrepreneur. You’re not expected to be an accounting professional on all the details of controlling your cash flow because it can be complicated.
Talk to an experienced accountant who can explain how to manage your financial flow to relieve some of the pressure. Invest in a professional who will walk you through each stage of improving your accounting and cash flow so that you won’t have to do it independently.
Without sufficient accounting knowledge, managing cash flow can be challenging for business owners or entrepreneurs, resulting in mistakes and potential cash losses.
Legend Financial is here to assist. As a market-leading accounting, finance, and taxes firm, we have assisted numerous companies and solopreneurs in the eCommerce sector in achieving their financial objectives. Contact us at any time if you need assistance.