Cash flow is rightly known as the lifeblood of an organisation, but it is something many small businesses struggle to get their heads around when they first start up. Having money coming in is going to be the only way to meet ongoing expenses and fund the expansion of your company.
That's why we've assembled five key strategies to help your business improve its cash flow and make the most of future business opportunities.
1) Create a business budget
Any effort to improve your corporate finances has to begin with the budget. After all, how are you going to know if you have actually improved your finances if you don't have this benchmark?
A budget should contain detailed figures on your existing cash flow and ongoing expenses. The gap between these two figures is where companies either thrive or struggle, making this the foundation of any company's finances.
There are other areas that you will also need to factor into your budget. The length of your sales cycle is going to have a significant impact on your future finances, as are any discounts you offer to entice new customers to your business.
2) Bill promptly
Billing is one of those things that can fall through the cracks in a small business. With many different back-end processes that require the attention of staff, it can be hard to get invoices out promptly.
While it can be tempting to let these processes slip, small enterprises still need to be sure they are sending out bills promptly once they have delivered a product or service. This is one of the easiest ways to close the gap between completing a job and receiving payment, so it should be a priority for organisations looking to achieve strong cash flow.
3) Offer a prompt payment bonus
Given how important cash flow is to company performance, you need to be sure you are giving debtors every reason to pay bills on time. Coupled with billing promptly, these little nudges can be enough to ensure a steady flow of cash into your business.
One of these is a prompt payment bonus, where companies offer a small discount for payment within the first 30 days of an invoice being issued. The offer doesn't have to be substantial but it is an easy way to incentivise early payment. Of course, any discount will also need to be factored into your budget to ensure it doesn't throw out the rest of your finances.
4) Monitor your strategies
Once you have a budget and a prompt billing strategy in place, it's time to monitor the results. This means staying on top of your budget and constantly updating it with the latest sales figures and new business deals.
It's also important to think holistically and keep tabs on broader developments that might be affecting your industry. A slow-down in business activity, for example, will affect payment times and throw a spanner into even the most successful budgeting efforts.
5) Have a back-up plan
There will inevitably be times when invoices aren't being paid promptly, and no amount of monitoring and budgeting will be able to avoid this. While this might seem like an unavoidable conundrum, companies can still develop a back-up plan in case invoices aren't being filled in time.
Rather than let this situation disrupt a company's cash flow, debtor finance is a useful tool to preserve a steady income. By assigning invoices to a third party, small businesses can unlock funds from their completed work and promptly access a large portion of the invoice's value.
Embracing these five steps can ensure your cash flow remains robust and gives your business the foundation it needs to thrive in a competitive business landscape.
If your business needs any help with working capital management via a business line of credit, debtor financing or equipment financing, contact Earlypay’s helpful team today on 1300 760 205 or visit our sign-up form.
If you'd like to learn how Earlypay's Invoice Finance & Equipment Finance can help you boost your working capital to fund growth or keep on top of day-to-day operations of your business, contact Earlypay's helpful team today on 1300 760 205, visit our sign-up form or contact [email protected].