Every small business owner will want to find ways to squeeze as much cash flow as possible out of their operations. The formula is simple. You collect receivables fast and slow down your payables while maintaining a good relationship with your supplier. But, a number of companies are not as good others at this. If you are looking for ways to manage your cash flow, consider the following pointers:
Carry Out a Good Cash Forecast
Ensure you get a good grip on the current status of your cash flow and where it may go in the future. Usually, small and mid-sized businesses don’t take time to prepare for the costs associated with quick growth. If you get more sales, you will need more employees and a bigger inventory. This means money going out upfront. However, do you know when that money will come back?
Most companies perform a one-year forecast. Mapping things out every week allows you to know where to expect expense surges before the big sales season and where multiple payments might come due all at once. Learn more about cash forecasting from Groupe Azur.
Assess your Supplier and Customer Terms
In case your business has cash flow issues, figure out how your customer and supplier terms are balanced. Assess if these terms work for you and how your customers and suppliers are doing to those terms. Check to see how your supplier’s terms stack up against others in the market.
Establish a Good Collection System
Having a good collection system in place allows you to shorten your receivables period. To create this system, consider the length of time you get paid, your collections activity, your contract level with customers, and ability to determine and address disputes quickly. Your payable operations must include enforcing payment discipline. You don’t want to miss out on discounts and deal with issues when it is time to renew your contract.
Don’t Handle Cash Flow as a Whole
Focus on segmenting your customers, suppliers, and inventory. In terms of inventory, observe sales volatility. Do you spend too much cash on products that do not sell frequently? You want to avoid having money tied up in inventory without meeting the needs of your customers.
When it comes to suppliers, try to separate them into regular suppliers against one-off buys. Your strategic suppliers will let you negotiate better discounts and terms. Moreover, sometimes, your biggest customers could you worst payers. Develop a strategy to approach them.