Use this checklist to more effectively manage your cash flow.
Cash flow is the total amount of money that comes in and out of a business. It is a key indicator of the financial health of your business. A consistent, positive cash flow can help you pay expenses, invest in new opportunities, and grow your business. Below are some cash flow management strategies to consider:
1. Pay bills strategically
Extend payables as long as possible and spread your payments. Don’t pay all your business bills at the same time. This can drain your cash and potentially jeopardize your relationships with suppliers if you are unable to pay. Instead, review bills, sort according to priority, and stagger payment dates so the most important bills — such as rent and payroll — are paid first. Payments that are less important and more flexible can be made later. However, be sure to pay on time to avoid late charges. Also, check if you can receive discounts for paying any bills early, and then prioritize the ones that qualify.
2. Choose the right payroll cycle
Structure your payroll to mesh with your revenue stream and comply with wage and hour laws. Businesses that generate daily revenue, such as restaurants and retail, can more easily cover the cash needed for weekly payroll. But this can be a challenge for businesses with slower revenue streams, such as manufacturers or wholesalers, because cash doesn’t come in as frequently. There may be a benefit to holding the cash to be paid less frequently than weekly, e.g. biweekly or monthly, provided applicable wage and hour law permits you to do so. Check with your state Department of Labor on any requirements for payroll frequency.
3. Negotiate your payments with suppliers
Using suppliers with low prices may seem like the best way to improve cash flow, but flexible payment options can be more important than bottom-shelf pricing. Ask your suppliers about their payment terms. You may be able to time your payments with your cash inflows.
4. Collect receivables quickly
Improve your cash flow by encouraging quick payment of receivables. These techniques can help you collect receivables faster:
- Request deposits from your customers when taking orders.
- Offer discounted prices strategically to move outdated inventory.
- Offer discounts to customers who pay quickly.
- Consider online invoices, as well as provide online payment options.
5. Manage your credit policies carefully
If you offer credit to customers, stand firm on your credit policies to make sure you get the cash you need. Try these strategies:
- Send invoices promptly, verify they’ve been received, and follow up right away on late payments.
- Require a credit check for all new customers before extending credit.
- Monitor your accounts to identify late-paying customers and implement a cash-on-delivery policy for chronic offenders.
6. Use a business credit card.
Consider using a business credit card to pay for everyday expenses to free up cash. Then keep track of those expenses with online banking and your monthly statements. Also, take advantage of any rewards programs that can reduce your expenses, such as a certain percentage cash back on some purchases.
7. Consider a line of credit
Having a line of credit provides quick access to funds when needed and can help maintain a balanced cash flow cycle. A line of credit can be used to bridge gaps between payables and receivables, buy equipment, cover seasonal or unexpected expenses, or to take advantage of growth opportunities.
8. Use technology to make and accept payments
Accept online payments to collect receivables faster and use electronic fund transfers to automatically pay bills on the last day they’re due. Technology should also help you keep track of where you stand.
Positive cash flow is critical to your short- and long-term financial success. Make the most of your cash by monitoring expenses, collecting payments quickly, and using resources that can make your cash flow management more convenient.