Business Cash Flow Management services can be considered lifeblood for a business. Otherwise, profitable companies with a rapidly expanding topline but facing cash flow issues may find it challenging to maintain that pace, and may even witness a decline in profitability.
8 ways in which a Business can Efficiently manage its Business Cash Flow:
- Forecast cash flows: It is one of the simplest ways of efficiently managing cash flow. A cash flow assessment of where the company stands today and where it is headed from there is essential in understanding the steps to take to improve the situation. Rapidly growing companies sometimes lose sight of costs, which may match pace with their growth. This can lead to severe cash flow problems. Hence, projecting can help get a grip on the situation.
- Set up and review terms: Setting up terms and conditions for customers as well as suppliers before finalizing the contract can be necessary for Business cash flow management. If there is a significant difference between the average payable and average receivable cycle, it can force a company to seek working capital from outside and add to interest payable cost. Creating terms revolving around payment terms, definitions, and liability limitations can save a sticky situation for a company.
- Lease rather than purchase: While the outright purchase of equipment, machines and real estate may end up being cheaper than leasing in the long-term, it can cause a cash crunch in the short-term, especially for young companies who don’t have tons of cash lying around. Further, leasing instead of buying is also efficient Business Financial Accounting Advisory Services – wise as lease payment is considered a business expense and can be written off.
- Inventory management: Sometimes, companies tie up a lot of cash in inventory even though some items may not be moving as quickly as others. If it is input inventory, then the company can effect strict controls so that such items are purchased only sparingly. On the other hand, if it is finished products, then it should consider selling slow-moving items at a discount to free up excess cash tied up in holding them.
- Employ credit screening and checks: Conducting credit checks via credit assessment agencies is important to ensure that the customers that a company is engaging with are creditworthy. Putting off a sale to a customer with poor credit can be beneficial rather than hurtful.
- Offer discounts and levy penalties: To ensure that invoices are honored timely, a company can offer discounts for payments made earlier than the due date and levy penalties for late payments. This carrot and stick policy is a simple yet effective tool for improving the cash flow situation.
- Increase modes of payment: Using multiple modes of payments can also be a quick-fix in increasing cash flow Management to a company. Electronic methods of payment can be especially helpful to both the company and its customer as they don’t take much time in clearing, thus allowing the customer to hang on to cash for much longer and still allowing the company to receive payments on time.
- Increase product price: Though many companies may refrain from increasing amounts of their products or services, it is possible that the quality of their products or services can fetch them higher revenue that they are leaving on the table due to low prices. Higher prices, even with slightly reduced sales, can result in increased revenue and thus, better cash flow. There is no harm in trying to find the perfect price point.