Poor cash flow is one of the biggest causes of a business failing. The task of constantly trying to get your invoices paid on time is rather like keeping your blood supply circulating; we all know what happens when that is cut off.
There are several ways to address the issue and say no to low cash. One of such ways include choosing a factoring company so that you enjoy a more sustained flow of money into your business and leave the chasing to someone else.
Here is a look at some of those fast fixes to help keep your business afloat.
No time to waste
It is important to understand and appreciate that even businesses that enjoy a full order book and are constantly busy and even possibly growing, can be killed off all too quickly and somewhat unfairly, if the cash flow is not good enough.
Just over 10% of small businesses end up closing their doors every year and according to the credit reporting company Dun & Bradstreet, the prime reason for their failure is cash flow, or a lack of it.
If you are struggling with cash flow in your business, there is no time to waste. You need to address the issue and identify the cause of your financial troubles, so that you can do something about it before it is too late.
Getting paid on time
A typical business will have a percentage of their customers who tend to pay on time and within agreed payment terms, along with other invoices that often gather dust before finally getting settled, after a lot of effort on your part to get the bill paid.
Standard business terms are normally 15-30 days, and if everyone followed those rules and paid their bills within this timeframe, a large number of businesses simply wouldn’t have any cash flow concerns.
There are two issues here. The first one is that there are almost always going to be a number of your customers who simply don’t pay on time. The other problem often concerns larger corporations that you are serving, who often seek to take advantage of their status and ask for extended credit terms of up to 90 days.
Ways to improve your cash flow
The way to try and improve cash flow for your business would be to offer an incentive for early payment to see if this encourages some of your customers to settle more promptly. You might want to be vigilant on this if you are offering an early discount, as some customers might try to claim the discount and pay you the lesser amount, even if they don’t adhere to the agreed shorter payment terms.
Another way of ensuring your get the money for your invoice on time, would be to use a factoring service.
They will charge a fee for financing your invoices, but the fact that you can get the money almost straight away into your bank account every time you issue a new invoice, can turn out to be worth the cost, if it helps to keep your cash flow healthy.
Watch your stock levels
Poor cash flow is not just down to not getting paid on time and there might be other factors that are hurting your finances.
One issue that can create poor cash flow is unnecessary inventory.
Having too much of your cash tied up in stock that is just sitting on your shelves can be a surefire way of starving your business of the financial oxygen that it needs. Keep on top of your inventory and try not to hold more stock than you need, as this will certainly eat into your cash flow.
If you do want to clear the shelves a bit and give your cash flow a quick boost, think about offering some discounts on these items, provided you have enough of a margin to still earn some money on the deal.
Keep an eye on your gross margins
Staying on the subject of profitability, it is important to keep a close eye on your profit margins, because if they are too low, this is going to have a detrimental impact on your gross margins.
You might want to consider doing a cost of goods sold analysis, which can help you gain a better handle on just how much profit you are making on each product line. If your profit margins are too low, this can be a reason why your cash flow is suffering.
When you consider that cash flow is one of the main reasons why so many businesses fail, it should be a priority to do what you can to ensure that this is not something that is going to happen to your business.