Disruption in cash flow is the problem of almost every business. The success of a business largely depends on a healthy cash flow. Even a business with rampant sales can face a cash flow problem. Just because your sales are rapidly increasing does not mean that you will lower your guards. If your receivables are taking a bit longer time, you should have a backup to avoid hindrance in payments.
Whether you have a small business or a large business, you will likely have cash flow problems. A business seems to be almost dead when you have no sufficient cash to hit the ground running. It can affect your business in many ways.
Your reputation will be hurt if you cannot pay to your lenders because of cash shortage or you cannot grow if you do not have enough money to invest in a propitious project. It is crucial to have all means of making a smooth flow of cash in your business if you want to grow. Here is what you can do about it.
Get payments on time
One of the most significant reasons for being run out of cash is not being paid. You often have good relations with your clients and hence do not like to chase them. It could be weird to remind your clients when they usually pay on time continually, but you cannot ignore this move with those several days past the due date.
A rule of thumb says that you should send them a polite reminder not to miss payments. To spur them on making payments before time, you should offer them discounts. For instance, you can provide at least 10% off on the total purchase price.
Have a cash reservoir
No matter how quickly you receive payments from your clients, you should have a cash reservoir if you need a significant amount of money unexpectedly. Do not dip into it as long as you can meet your overheads.
Bring such reservoirs in use when you need an urgent supply of cash. For instance, you are to pay down your business loan, and you are struggling with a sufficient cash supply.
Strengthen your relationship with a lender
No matter how good your business is doing, you can face a cash shortage at any time. Sometimes a cash reservoir may not have enough funds to meet your needs. Under such circumstances, you will turn to financial institutions. Thankfully, some online lenders can help you fund your business needs, even if you are a start-up.
If you have maintained a good relationship with them, you will likely get a loan at affordable interest rates. From guaranteed payday loans to long-term loans, you can get all types of funding sources at once from direct lenders. With a good relationship with your lender, you will likely borrow a large amount of money at flexible terms and conditions.
Keep tabs on it
It is crucial to track where your cash is going. You cannot manage your money without tracking it. Get a record of each transaction you make every day and analyse where it went at the end of the month. This will help you understand how money is being utilised in your business.
If you find that your money is going in useless transactions, make sure that you take control over it there and then. A rule of thumb says that you should check it regularly so your money will not go down the drain. Once you have an idea of your business cash flow, you can think about improving it.
Do not make advance payments
Sometimes you make advance payments to get nominal cash discounts from your suppliers. Never do this if you face a drastic fluctuation in your cash flow. When you do so, you will likely have a cash shortage, and eventually, you will not be able to spend money when necessary.
Try to make a good relationship with your suppliers so they could offer you a discount even if you do not need to buy the material in bulk.
When all methods fail to make smooth cash flow, you should increase your products and services’ price. Be cautious when you revise your pricing because it can affect your sales. Do not increase the costs of all of your goods. Do it gradually, so it does not shock your potential customers.
If your business is struggling to have smooth cash flow, you should track where your money is going. Have a cash reservoir, get paid on time and try to avoid making advance payments. If nothing works, the last resort is to increase the prices. Cash management is not easy, especially if you have a large company, but you can do it.
Description: Many businesses, including small one, run out of money despite high revenues. This blog discusses how you can make smooth cash flow in your business.