Business is actually quite simple — generate positive cash flow, and hopefully lots of it. In practice, however, it is a little harder to accomplish. Here’s some practical advice to improve your cash flow in the following five areas: Expedite Cash In, Optimize Cash Out, Increase Revenue, Decrease Expenses, and Save Taxes.
Expedite Cash In
1. Invoice on-time because every day you are late is at least one more day your customer will wait to pay.
2. Give credit to those deserving and consider this policy: “In God we trust — everybody else pays cash.”
3. YOU set credit terms, not your customers. Do not let them dictate your payment terms or consider getting a new customer.
4. Invoice your customers as early in the process as possible.
5. Make collections a core competency and only outsource it if you have exhausted all internal resources.
6. Cut off customers who haven’t or appear that they won’t pay.
7. Deposit checks immediately — you may want to consider remote deposits or other options to turn checks into cash quickly.
8. Offer several convenient payment methods — customers should never have an excuse for late payment related to your lack of convenient payment options.
9. Set the payment expectations of new customers with a welcome letter.
10. Know your customers’ payment procedures. Imagine the power in this conversation: “Tom, I’m aware you will be cutting checks this Friday and I wanted to ensure my invoice will be paid with one of those checks.”
11. Stop carrying the 20% of your inventory that takes the longest to sell. In addition to your cash, your margins will actually increase because your inventory turns will likely skyrocket!
12. Negotiate with one or two layers up in your supply chain to hold the inventory longer.
13. Complete and close out past due projects.
14. Watch out for factoring — while the immediate cash is nice, effective rates for these services are often far in excess of 36% annually.
By Ken Kaufman
Ken Kaufman, Founder & CEO of CFOwise®, serves as the Chief Financial Officer for a dozen start-up, emerging, and medium-sized businesses. With almost two decades of experience and as an adjunct professor and published author, Ken focuses his professional efforts on helping entrepreneurs maximize cash flow, improve profits, and obtain clarity.