In today’s economic environment, one major concern for many businesses, in Maine and everywhere, is maintaining a healthy cash flow.
If your small business is feeling the pinch of a tight economy, and tight credit, its ability to manage cash flow is critical. Enterprises that successfully practice good cash management generally survive and prosper. Those that don’t are likely to be undone by the weight of increasing debt and the inability to pay employees and suppliers.
Keeping cash flow stable requires juggling most aspects of your operation, including accounts receivables, payroll, credit and inventory.
With that in mind, Filler & Associates has come up with twelve ways to strengthen your business’ cash flow:
1. Take the maximum time to pay your suppliers. Essentially, this amounts to an interest-free line of credit and gives you more time to use your working capital.
2. Check to see if your suppliers offer payment incentives. Some companies offer a discount for paying early. Many suppliers are willing to offer incentives, in order to speed up their own receivables and cement long-term relationships with good customers.
3. On your end, offer customer discounts to early payers. Consider providing a one to two percent discount if bills are paid within ten days of delivery. This may cost you a little, but it can also speed up payments and have a major positive effect on your cash flow.
4. Examine payment terms and your billing schedule. If possible, send an invoice with your shipments and not separately afterward. Remind customers of your credit terms. Check your invoices or statements to ensure there is a clear indication of when payment is due. Encourage customers to pay with fund transfers or internet payments.
5. Closely track and collect overdue accounts. Have Filler & Associates prepare fast, accurate reports on overdue payments. Monitoring accounts can reveal early warning signs. Act immediately on past-due accounts and use a collection agency, if necessary.
6. Consider establishing an interest penalty for late payments. Once a bill becomes long overdue, you may have to resort to penalties. While you can, and should, sympathize with hard-pressed customers for a reasonable amount of time, don’t let their problems drag your cash flow down.
7. Don’t extend credit without taking the proper precautions. Require all new customers to fill out credit applications. Request and check credit references. Spell out the terms of the arrangement on your credit application, making sure your customers know the terms and exactly when their payments are due.
8. Trim expenses and cut unnecessary spending. Look for ways to reduce waste your business daily operations. This may include office supplies, company vehicles, cell phones and land lines, utilities, and more. You may also have unused equipment that you could sell or donate to charity.
9. Keep your inventory lean. As a rule of thumb, the expense of maintaining stock in inventory averages about two percent of the cost of those goods for each month not sold. Therefore, if your business carries an item for a year, you’re down 24 percent. Cut your losses on old and outdated inventory items or donate them and claim a charitable tax deduction.
10. Look for tax deductions you may have missed. The complex Internal Revenue Code is filled with breaks for various industries and taxpayers in certain situations. Consult with Filler & Associates to see if there are potential opportunities or steps you should take by the end of the year to reduce your tax bill.
11. Free up cash by leasing rather than buying. Leasing computer equipment, cars, facilities, tools and other gear generally costs more than buying, but you avoid tying up cash.
12. Examine prices. Many company owners and executives won’t consider increasing prices in a tough economy because they’re afraid customers will head to the competition. However, it may be necessary if your prices aren’t keeping pace with expenses.
These ideas are just some of the ways your company can improve cash flow. Consult with Filller & Associates, as we can help you review cash flow statements, find weaknesses, and come up with solutions to maintain a healthy balance between the money flowing in and out of your organization.