cash flow management techniques

It’s just about everyone’s dream to become an entrepreneur. And yes, starting a new business venture, big or small, always comes with certain risks. However, if you are investing your life savings, and perhaps have even involved some of your friends in the process of starting your own business, you need to ensure that you are entering the world of commerce with eyes wide open.

Whether it’s a laundry shop, a neighborhood café, or a graphic design firm that you are looking at starting, you have got to cover the bases. Even after conducting a thorough feasibility study and getting experienced people (including yourself) and reliable, trustworthy vendors on-board, you need to ensure you are equipped to deal with whatever initial hiccups your new enterprise will encounter along the way.

One of the best ways to protect your business from the worst possible scenario (that is, facing insolvency) is by ensuring you implement basic cash management solutions. That is where this guide comes in, as it is designed to ensure your firm is never strapped for cash or, at least, to help reduce the possibility of it ever happening so you can run your new company with confidence and with significantly less worries.

#1. Religiously monitor cash flow

This seems to be a no-brainer, and yet a lot of new businesses close shop after a year or so for precisely failing to stay on top of their cash flow. Remember, when it comes to business, taking a lackadaisical stance with regard to finance is entrepreneurial suicide.

Start by creating a cash flow budget to monitor finances for the short and long term. This is designed to help you understand exactly how much you have, where your money will go, and exactly how much is needed to keep the business running optimally.

As your business grows, and if you can get a trusted professional on-board to monitor or handle cash management in your stead, then it would be a great idea to give this person cash flow management responsibilities, and then report the status of your company finances periodically.

#2. Get deposits or milestone payments

Applying this technique, of course, depends on the nature of your business. Freelancers, construction firms and PR/marketing agencies usually implement this strategy. This needs to be clearly stated early on before signing a business deal or contract with new clients since not all customers may be willing to negotiate payment terms in this manner.

But there are also those who do understand when the company they are dealing with has a product or service which would entail some major spending or substantial effort to be able to deliver promptly and efficiently. So, don’t be afraid to ask.

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#3. Make billing a priority

Doing so would be so easy if you are operating a café, water delivery or catering service, for example; not so much if you are into providing content management, video editing or marketing services. But you do need to bill your clients diligently.

The faster that invoice gets to your customer’s doorstep, the more quickly they can pay you. Establish a weekly billing schedule for your company to manage receivables smoothly and efficiently. Include a payment due date with your invoice so clients are encouraged to pay promptly.

#4. Get customers to pay faster

This does not simply involve getting the invoice on to the other side as quickly as possible. You may want to be a little bit more creative by offering discounts or similar incentives, within reason of course, so customers get a little nudge to take care of paying you faster since doing so will benefit them in one way.

A good example will be offering 2% off their next invoice so you establish getting their business again the next time around and getting paid earlier. You may also want to offer 2% off their current bill if they pay in the next five or 10 working days. This would set the stage for reliable and faster-than-punctual payment arrangements with some of your customers willing to take the deal.

#5. Negotiate with your vendors

As a customer yourself, you may want to try negotiating better payment terms with your vendors. Your objective here is to ensure you keep your cash with you for the longest time without risking being charged late payment fees.

If you have been refused a request for deferred payment before, and it is a really good vendor you are dealing with, establish a reputation for being reliable and on time in terms of payment.

Once you have been classified as a desirable and dependable client, you can ask your vendor again, and they may be more amenable to your request. Time is of the essence in business, so if you can keep your cash for an additional 10, 15 or 30 days, then good for you!

Finding yourself needing cash management services for your growing business? There are banks and specialized firms ready to help you with your business needs so you can focus on other things such as expansion and partnership opportunities.