Do you have ample cash flow monthly? It can be a tricky question for any business. Without ample cash flow you might not have enough cash on hand to pay expenses as they come due. You might end up paying unnecessary late fees and miss out on early pay discounts some vendors offer. Some people believe that simply signing more clients or selling more products will fix their problems. All too often though, it just masks more serious problems and doesn’t really fix anything.
The key to cash flow is not just having plenty of it, it’s making sure you maximize what you have. If you have been organized and diligent in your accounting, then you should have access to information that can start this process right away. What are some examples of things that will improve your cash flow? If you invoice customers, it is important to review your accounts receivable (AR) activity and see what balance you are carrying monthly. Analyze the account to determine the average time to pay. If a majority of your customers are slow to pay you can offer an incentive, such as an early pay discount. This can drastically improve cash flow by improving the reliability of payments. Knowing what you have and when you are going to have it improves planning.
Another option that I recommend using in conjunction with the above is reviewing your routine expenses. Check to see if a frequently used vendor can extend your terms. For example, if your payment is due 15 days after invoicing, maybe they can change it to 30. Or maybe your cash flow increases at a certain part of the month, say the 15th. If you have a specific day each month a bill is due see if the vendor can change the due date. For instance, from the 10th to the 18th. You might be surprised how willing companies such as, insurance and auto loans are willing to do this. This type of planning takes time and the proper information, but it will help you to smooth out the highs and lows of your cash flow.
Christi Rains, President Alpha Omega Consulting & Bookkeeping, LLC – Sensiblebusinessowner.com – Email Christi@AOBookKeeping.com for more information.