One of the most prevalent issues that businesses face is ensuring that their cash inflows are enough to meet their outflows. Cash flow helps to keep enterprises afloat. They can buy equipment, materials, pay salaries, purchase inventory, and keep their doors open for trade.
Several businesses are been forced to shut down their operations due to lack of enough cash. If profits, revenue, and expenditure are out of balance; there’s only so much that a business can do to maintain balance. It’s always important that cash flow stays in check. Also, it’s never only about just increasing revenue; speeding up invoices, cutting costs, and taking advantage of interest is equally important.
Below are tips that businesses can adopt to improve their cash flow:
- Using terms and conditions
Terms and conditions help to protect your business even before it engages with new customers. Having a document or contract that people can sign goes a long way. It ensures that customers know how you do business and shields you from any future claims. It could be a formal document or a web page that directly asks them if they agree to your business terms. It’s also important to include other details such as definitions, dispute resolution mechanisms, payment terms, refund policy, and limitations of liability.
- Sell obsolete or excessive inventory and equipment
Equipment that is no longer in use can be sold to release capital that could help the business in its operations. Such equipment normally has a salvage value that is equal to its book value. Selling it after a long period of use may bring forth taxable gain. This could help add more capital to the business. Excess inventory can also be made obsolete due to improvements and changing customer needs. If you have inventory that isn’t likely to sell in the next year, consider selling it early.
- Reevaluate your prices
Could your products be selling for too little? Is it possible to sell them for more? The thought of raising your pricing could be scary as it may result in lower sales. It’s always best to test out what the market can handle before coming to preconceived conclusions. An increase in price brings about a perceived increase in value for a product. When the pricing is too good, customers may not take your products seriously. If it’s too high, it may result in a decline in business as customers move to your competitors. Find out what price point is best to help maintain or improve sales while increasing your cash flow at the same time.
- Give incentives for early payments
Give your customers discounts for early payments. Some companies are known to offer discounts if customers pay their bills early. Make the incentive significant enough to warrant early payments. This provides a great opportunity for those that wish to save money through early payments. On the other hand, you could charge interest and penalties for late payments. This requires some regulation. Be sure to check out the laws regarding such payment options before communicating with your customers.
- Take deposits for large orders
Pre-payments and early deposits work well to prevent financial loss when commitments aren’t met. Communicate your policy to your customers before engagement. Include a contract where possible to cushion you in case of disagreements. If you take custom orders, charge an appropriate security deposit from the total price. When it comes to paying vendors, avoid paying deposits. Take advantage of your good credit history and the relationship you have built over the years.
- Do your research to identify bad payers
Although this might not help with prompt payments, ask for business referrals. While at it, find out as much as you can about your potential customers. Review their credit history to flag out any bad payers. On the other hand, you could buy a credit report from reputable sources in Brisbane. Such reports provide data on millions of credit-active individuals, businesses, companies, and sole traders. Some of them offer subscription-based alerts that keep you up to date on your creditors’ ability to pay.
- Boost your marketing
Making improvements to your marketing strategy will surely make a positive impact on your cash flow. Marketing opens up untapped markets, boosts your customer’s lifetime value, and reduces your business’ cost-per-lead. A content strategy may be a great option if you wish to build more trust and increase your credibility. Content marketing does this by boosting conversions and improving the company’s image.
There are several ways in which businesses can improve their cash flows. The end goal is to always maintain financial flexibility and have the ability to meet business expenses as they arise. Taking up the recommended strategies helps to build the business’ cash reserves and prevents the likelihood of shutting down due to lack of cash.