Tighter credit terms, slow-paying customers, and a lingering lackluster economy continue to hamper the cash flow of small businesses. Cracking down on your cash flow management is a good way to ensure your business has staying power during the good times and not-so-good times.
Here are eight tips for managing small business cash flow in a down economy.
1) Collect payments faster. In a tough economy, people often take longer to pay their bills than they normally do. To encourage customers to pay you sooner, provide a discount to customers who pay their invoices early. As soon as an invoice payment is late, instead of sending out a reminder letter, make a phone call to the slow-paying customer.
2) Adjust payment policies. As an example, for large service projects, consider invoicing for 50 percent of project’s invoice total upfront. On the flip side, ask your vendors or suppliers if they’ll offer you a discount for paying them early.
3) Trim expenses. Whether you’re an individual, large corporation, or small business, there are always ways to trim expenses, which is one of the most relevant tips for managing small business cash flow in a down economy. Some ideas that your small business can implement to cut expenses include printing less, using old equipment, and bundling services, such as phone and internet.
4) Increase your inventory turnover rate. If your small business relies heavily on inventory, reducing your inventory levels can be an effective strategy to better manage your cash flow. Keeping inventory low not only avoids tying up too much working capital in inventory sitting idle, but reduces the risk of products getting outdated, expired, or old before they are sold. Identify the fast moving merchandise and the slow-turning products to eliminate cogs in the inventory turnover cycle.
5) Pay bills when they are due. Unless you’re getting a discount for paying invoices early, consider leaving cash in the bank — and earning interest — until the payment is due.
6) Track accounts receivables. Review overdue receivables weekly to ensure no late payments evade your notice.
7) Use electronic invoicing. Electronic invoices can mean less “I never received the bill” excuses. Besides reducing the risk of bills getting lost in the mail, electronic payments reduce snail mail transit time, which gets you your money faster.
8) Consider opening a business line of credit. During tight cash flow months, a business line of credit provides a cash cushion. For many business lines of credit, you’re only charged interest on the amount you borrow.