Establishing and maintaining a healthy cash flow is arguably harder than it sounds. At one point in time every business will experience hardship and tough times, and could even find themselves in the unfortunate position of being deemed uncreditworthy. Cash is king in business and maintaining a healthy cash flow will help you maintain a healthy business.
Here are our top tips on maintaining a healthy cash flow for your business.
How to get there
Pay off your debt
If you’ve struggled to pay bills in the past or are still struggling, the best thing you can do is try to stop missing payments. Many people think once they are in trouble it’s too hard to get out, and they hide from the people they owe money too. By communicating with them, you may be able to work something out. Change your payment terms, pay less a month for a longer amount of time or see what other options they can offer you. The first step is admitting you’re struggling, and the next is getting help with it.
Pay your bills on time
It’s better to be making payments every month, even if they are small ones, than to be missing payments because you can’t afford the full amount. By consistently paying your bills on time you are creating a healthy payment pattern which will positively effect on your business and company credit report.
Cut your loses
Think about what is costing you a lot of money. Whether it’s high tech equipment, lots of staff or an office based in the most expensive area of town; there are always things you can save money on. If you’re struggling, get rid of luxuries and go back to basics. Image is important, however having money in the bank is crucial. Another thing to look at is who you are dealing with. Is there a customer who is always late paying you? Are they then causing you to not be able to pay your bills on time? Cut your losses with bad paying customers to get your cash flow back on track.
How to maintain it
Deal with creditworthy businesses moving forward
After cutting your losses with uncreditworthy businesses, only deal with ones that can afford to pay you consistently on time going forward. Don’t underestimate the importance of making sure someone you are going into business with is creditworthy, especially if you are a small company. If they don’t pay you and you are a smaller entity, one late or missed payment could seriously affect your cash flow. Credit check your potential customers before entering into contracts with them.
Monitor your customers
Some people make the mistake of thinking that if they have already agreed to a business relationship with another company that they will be ok in dealing with them. Even if you credit checked them at the beginning, circumstances could quickly change. Monitoring your customers and suppliers is highly recommended as you may also be able to spot the decline in a business before it starts getting out of hand if you are regularly checking them. You can then adjust your cash flow accordingly. Creditsafe’s Risk Tracker monitors your selected companies on a daily basis for you.
Keep your finances organised
Making all these changes to how your business is run would be wasted if you didn’t try to maintain your new efforts. Once your cash flow is back on track, you are dealing with creditworthy customers and your bills are all up to date, make sure you continue to provide timely invoices that are correct and up to date. If your invoice goes out late or is incorrect it will slow down payment. It is also important to keep your contracts up to date. Know how long a customer is paying you for and how much they are paying you. If something changes, make sure that contract is updated immediately so you are always on top of what money is coming into your business.
By following these steps you should have or be well on your way to a healthy cash flow. Problems will always occur, so we advise that if you can, have an emergency cash fund for any little surprises. Changing a business’s ways will always be a timely task, but your business will thank you in the long run.