Cash Flow Management in 9 Simple Steps

Cash Flow Management in 9 Simple Steps

Any business’s ability to generate cash is essential to its continued success. Nevertheless, one of the main problems small-to-medium business (SME) owners confront is properly managing it. In February 2020, only 49% of Australian small business owners had positive cash flow, according to research by online accounting pioneer Xero. There are dependable methods that help solve cash flow issues for higher peace of mind, even though managing business cash flow is a concern for businesses everywhere. The following 9 simple measures can help you increase your cash flow and lay the groundwork for future success:

1. Organize your finances for better cash flow management

Get your books in order so you can accurately track how much money is flowing into and leaving your business. This is the first step to effective corporate cash flow management. Tracking your income and expenses is simple thanks to robust, cloud-based online accounting tools like Xero, which put this information at your fingertips wherever you are. A missing opportunity is that potentially up to 45% of Australian small businesses don’t utilise any accounting software to keep accurate, current financial records.

2. Create a cash flow statement

Once your books are in order, the next step is to prepare a cash flow statement, a straightforward document for cash flow analysis that displays the amount of money in your businesses bank account at the end of each month.

Positive cash flow, or having more money come in than leave your account, is a sign that your business can cover its present running costs without taking on further debt. Whereas negative cash flow, or more money leaving your account than entering it, indicates that you should examine your spending patterns more closely and that you need a sales strategy to turn things around before they get worse.

3. Put credit policies and processes in place

Customer late payments are among the largest (and most frustrating) obstacles to a businesses cash flow. In our busy lives, we have all experienced failing to pay an invoice on time or even not receiving one at all.

In fact, according to research by fintech lender, Moula , 65% of Australian SME clients fail to pay their bills on time, making this a widespread issue. Implementing credit policies and processes can significantly improve this situation and prevent you from constantly pursuing unpaid debts.

This involves everything from requesting a credit application from any company you do business with that wants payment terms to checking credit references, issuing invoices promptly, and following up right away when there are issues.

4. Recognize the typical debtor days

Knowing your average debtor days, or the average number of days it takes your customers to pay you after you issue them an invoice, is a crucial step in helping you get paid on time and, as a result,

establishing successful business cash flow management. Once you are aware of this crucial number, you can monitor the success of the actions you are taking to increase the flow of cash into your business.

5. Make it simple for customers to make payments

Making it as simple as possible for customers to pay you in the first place is one of the simplest methods to increase your businesses cash flow. This can be accomplished by using an easy-to-read invoice form that lists all the payment methods you accept, including EFT, credit cards, and other options. Make sure the quantities on your invoice are accurate, as well as the name, address, and contact information for the appropriate party.

6. Provide a modest discount for prompt payment

Offering your clients a little discount for early payment is a well-liked incentive that has been repeatedly demonstrated throughout time. You determine the exact amount based on your financial capabilities. The bait that gives your money a much-needed lift, for instance, it could be a 2% discount on invoices that are paid within 10 days.

7. Request longer payment terms from vendors

Asking your suppliers if they will extend their own payment terms is another successful business cash flow management approach. The previous four steps discussed how to encourage consumers to pay you more quickly. You can have more money in the bank to pay for your own bills in the interim if you gently ask a supplier to extend their terms, for instance, if they now expect payment within 15 days after issuing an invoice. The more you buy from a provider, the more negotiating leverage you’ll have.

8. Bargain for lesser pricing while making purchases

Up until now, all the advice has been geared around sustaining and enhancing your businesses revenue. Your expenses are on the other side of the cash flow equation. Asking your suppliers for discounts on the goods and services you frequently buy is an efficient method to reduce these costs. Even modest savings can accumulate over time and have a significant, favourable effect on your financial condition.

9. Get short-term commercial financing to enhance cash flow management

Finally, if you want to enhance your business cash flow right now and further your entrepreneurial endeavours, you can always apply for a short-term loan for business purposes. Internet business lenders have made the application procedure far easier, enabling you to receive funding more quickly and take advantage of chances presented by an unstable and dynamic economy.