Beginner’s Guide to Handling Your Business Cash Flow

Every business thrives on its cash flow. Cash flow is the movement of cash to and from your business, and how you handle it may guarantee your success or cement your failure. A company needs sufficient cash to meet its expenses, repay loans to its investors, and reinvest for further business growth. If you manage your business’ cash flows well, you can keep expenditures in check and have enough cash reserves to meet contingency expenses.

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Monitor Your Cash Flow Regularly

You can use various accounting software like Xero ® , QuickBooks ® , and Sage ® to reconcile your company’s accounts, budget expenditure, process payments, and generate reports. Store your information safely in the cloud, making it easy to monitor cash flows.

Manage Your Cash Flow Forecast

Forecasting expenditures and incomes generally allows you to manage your cash flow well, build projected income and projected expenses, and add a timeline of expected income receipts. This may help you build a plan to manage cash flow.

Negotiate Favorable Supplier and Customer Terms

To secure your business’ cash flows, you may want to ask for staggered payments and deposits wherever possible. This is helpful for longer-duration contracts and bigger orders where you'll need cash to buy materials and pay daily labor. In industries like construction, owing to the sheer volume of work and costs involved, it’s not uncommon for the contractor to ask for a small upfront deposit prior to work beginning.  Contractor’s generally bill for a larger portion once work starts, and the client pays the balance upon completion of the job.

Maintain a Sustainable Line of Credit

A long-standing relationship with your bank is imperative for good business growth. The trust built over the years is likely to build  a good business credit which safeguards cash flow in times of need. A strong line of credit generally means a reduced cost of borrowing. You may also  use a portion of your accounts receivable as collateral for a line of credit. You should aim to have a cash reserve handy, and your business books should always be precise. This promotes effective bookkeeping practices.

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Research Business Credit Cards

A business credit card may be  helpful if used wisely. With regular statements, it's easy to keep track of your expenses and see where you have spent your earnings. The points you accumulate on your credit card may also  go towards business or travel purchases.

Employ Mobile Payment Services

Digitally regulated transactions like mobile wallets reduce the dependence on more traditional means of payment like cash or checks. With mobile payment solutions, you can use apps on your smartphone to receive credit card payments.

Reduce Expenditures

Keeping a regular track of your recurring expenses may help you cut down unnecessary expenditures. These expenditures may  include: paring back on payroll, rent, certain software subscriptions, utilities, equipment, and insurance you no longer need.

Keep Innovating Your Business Offerings

The customer will always be king, and making your business customer-centric is likely to help your brand image and profitability. Understanding your clients’ needs is the first step towards building a strong customer-focused business. You can tweak or build on your product to meet their needs. By making your product or service offering affordable and dynamic, you can increase the likelihood of satisfied customers and repeat business.

Delay Vendor Payments

If you’re an emerging or small business owner (or even if you're not), it's sometimes helpful to avoid paying  bills before the due date. By delaying vendor payments as much as possible, without incurring late payment charges or jeopardizing the business relationship, you may keep cash in your account for as long as possible.

Send Invoices ASAP

You  may also invoice your client immediately upon completion of the job. Many businesses wait until a specified date in the month to invoice all clients together for a specific period, however, the sooner the better, generally speaking. Payments also need to be per the terms of the contract. Digital payments, via Stripe ® and PayPal ® , can make the whole process a lot smoother.

Consider Invoice Factoring

Many companies are also choosing invoice factoring. Growing businesses are regularly in need of cash and may be affected by delayed client payments. Factoring can help you sell your accounts receivable at a discount. The factoring charge or invoice discount rate is usually a small percentage of the receivables or charged on a variable rate based on the payment timeline. You can negotiate the payment terms with the factoring company.

If you choose this method, aim to maintain efficient invoicing procedures, including invoicing for jobs upon completion. Well-presented invoices typically have key metrics entered, such as the due date, invoice number, amount due with the break-up of costs, payment terms and method, and delayed payment penalties. Ensuring the invoice is legible and addressed to the correct person is also important to consider.

Cash flow management is often one of the biggest hurdles for most business owners. With these tips in mind, you can increase your chances of  staying on top of your cash flow, striving to ensure that  you always have the money you need to grow your business.

About the Author

Grey Idol is the marketing director at altLine by the Southern Bank, a trusted provider of invoice factoring and accounts receivable financing.

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WHAT YOU NEED TO KNOW: The SmartBiz® Small Business Blog and other related communications from SmartBiz Loans® are intended to provide general information on relevant topics for managing small businesses. Be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed. Please consult legal and financial processionals for further information.

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