All small and medium-sized business owners are concerned with this problem: how to improve cash flow? Especially now, as the coronavirus pandemic has disrupted businesses on a global level.
Growing a business requires expanding your team, hiring new staff, investing in necessary tools. Without reliable cash flow, you can’t do that so you’re stuck in the same struggling position.
In this article, we bring you 10 ways to improve your cash flow and ultimately grow your business.
Understand Your Current and Predict Your Future Situation
The first and most important step is understanding your current cash flow situation. What you need is a forecast for revenue and growth. This can take time but it is essential because it will help you prepare for growing your business. Most entrepreneurs recommend planning both your revenues as well as your expenses.
If you run a one-man business, you can do this on your own using just a pen and paper. But if you can’t manage it alone, seek help from your accountant.
Reconsider Your Collection System
Your cash flow is only as good as your collection system. How long is your receivables period? How long do your customers typically take to pay you?
Consider shortening your receivable period to improve your cash flow. A good collection system involves a few other factors as well, such as solving disputes promptly and making the payment process simple enough for everyone.
Review your collection system and think about your relationship with your customers.
Don’t Delay Sending Invoices
Is it taking too long to get paid? The simple way you can improve your cash flow is by sending invoices right away. Do not delay them because the faster you send these, the faster you get paid. That means more cash to work with.
If you can’t speed up the process manually, consider switching to an app that sends invoices automatically thus saving you a lot of time.
Reach Out to Customers
The next step is getting your customers to pay their invoices. This can be done by sending them reminders (multiple times if necessary) or giving them a call if needed.
This might be tricky for new business owners who don’t want to jeopardize their relationship with customers. However, you need to be able to see the big picture. The faster your customers pay, the more cash there is.
You can also use one of the many available accounting apps to automatically send reminders to your customers. These apps typically send reminders a little before the payment is due, the day the payment is due, as well as after the deadline expires.
If all these reminders fail to get the customer to pay, you should give them a call.
Offer Incentives for Paying on Time
According to research, about 62% of invoices take 60 days or longer to be paid in the digital advertising industry. To improve your cash flow, you should also consider offering incentives to customers who pay their invoices promptly.
This can be a bonus or something else they get for paying on time that makes them feel special. Customers appreciate when businesses show that they care and they also enjoy getting gifts. Put two and two together and you get a formula for improving your cash flow. A happy customer who feels valued is more likely to pay on time the next time too.
Introduce Late Payment Fees
Another way you can motivate your clients to pay on time is by introducing a late payment fee. This is usually not more than 5% and it serves to motivate customers to pay on time.
When the invoice date is near, you can send your customers reminders that a late payment fee will be added to their bill if they don’t pay on time.
Reduce Your Expenses
Let’s not forget your expenses. So far, we’ve focused on the customer side of cash flow improvement but if you’re spending more than you’re earning, it doesn’t really matter whether clients pay on time or not.
Review your expenses and see where your money goes every month. Are you paying for tools that you don’t use regularly or that aren’t that effective?
Are you spending money on marketing efforts that bring weak or no results? Make sure that you invest in tools and marketing campaigns that bring concrete benefits to your business.
Understanding where your money goes is the first step towards cutting costs, and cutting costs will improve your cash flow.
Analyze Your Marketing Efforts
You might wonder whether marketing is tightly related to cash flow. It is, and it can significantly influence your revenue. If you’re investing in marketing, make sure that you understand the results. For example, if you’re using several marketing tools, measure their results to see which is the most effective. Once you determine what works, invest in that, and cut your marketing budget for less effective tools.
Reward Employees for Reaching Sales Targets
Motivated employees are productive employees, and productivity leads to cash flow. How so? If you offer incentives to your employees for reaching sales targets, they will go out of their way to achieve the desired results. Because everyone loves rewards, right? Employees also want to feel valued, they want to see that you appreciate their efforts. What better way to show them your appreciation than by rewarding them for achieving great sales results?
If giving bonuses to hard-working employees is something you can’t afford at the moment, don’t give up. There are other ways you can incentivize your sales team to step up their game. Things like paid days off, discounts, vouchers, flexible office hours, etc.
Improve Stock Management
How you manage your inventory is just as important for cash flow as boosting your sales. For example, if you have a lot of products that sell sporadically, your money remains tied up so you should consider replacing the items with something more profitable. You should invest in stock with a quick turnover. It’s these items that will help improve your cash flow.
Also, make sure you don’t run out of your essential products. Set up a system that will remind you when new stock should be ordered.
I’m Rebecca, a translator and avid traveler, a book worm, and a horror flick enthusiast. My job has given me the amazing opportunity to travel to dozens of countries around the world, and writing on Rough Draft gives me a chance to try to showcase some of them.