Cash flow is usually a top concern for any business, but it’s even more essential for small and medium businesses. Small new businesses are often the worst hit as they usually don’t have the same cash reserves. This leaves many to scramble for ideas, but it also makes forecasting difficult. Having cash flow issues also means that your business is always one catastrophe, major error, or important repair from closing. Let’s take a look at a few tips that will allow you to manage your cash flow better.
Change Your Payment Structure
If you’re delivering a service or product that demands a lot of cash resources, you should consider asking for milestone payments or partial payment upfront. This could relate to people working for marketing agencies, PR firms, or graphic designers for instance. If this is your service area, you can ask for payments at the beginning of the job and as certain pieces are delivered. This ensures that you not only have money coming in, but have something to fall back on if they have to interrupt the project for some reason.
Don’t Let Bad Credit Limit You
A lot of small business owners will automatically ignore the idea of getting financing because they believe they don’t have the credit for it, but that could be a huge mistake.
There are plenty of options for people who have poor or no credit. One would be to look at alternative lenders. A UK based bad credit lender could help you get financing based on other factors besides your credit score. These people might be more interested in your books than your credit, so you could always give them a try.
Another option would be to use invoice factoring. This allows you to borrow against invoices before their due date. In this case, the creditworthiness of your clients will be what will determine eligibility.
Incentivise Clients for Fast Payments
One option for better cash flow would be to ask your clients to pay sooner. While not everyone will be pleased with the idea, you can make it easier by offering them an incentive to pay the invoice earlier. For instance, you could give them a 2% discount if they can repay the invoice within 10 days. You can make this discount higher if you want to accelerate payments further, as long as it still benefits your bottom line.
Ask for More Time from Your Suppliers
On the other hand, you want to try to ask for more time to repay your suppliers. If you have a solid relationship with them, there are more chances that they will acquiesce to your demands. If your current payment time is 15 days, try asking for 30. Depending on the number of suppliers you work with and how good you are as a client, you’ll find at least a few that will accept. Don’t be afraid to be persistent either, and consider looking elsewhere as well.
Identify and Cut Waste
You should also always be working to identify waste wherever you can find it. It could be your overheads, your processes, or your buying decisions.
Make sure that you have an energy audit performed. Also, check if you really need as much space as you do. You could decide to split space with another company or find somewhere less expensive. Check if and where you can implement automation, and consider buying used when possible.
These are just some of the steps you can take to manage cash flow issues in your small or medium business. There are plenty of other ways to do so, so don’t stop researching and try to always make your operation leaner as you progress.