Maintaining healthy cash flow is one of the most pressing challenges faced by small businesses. You need a consistent flow of cash to meet your payroll obligations, pay bills, invest in inventory and a host of other everyday expenses. Here are five tips to help you prevent cash flow problems and improve the overall health of your business.
5 Tips to Prevent Cash Flow Problems
1. Forecast Your Cash Flow
It is a good idea to create an estimate of cash coming in and cash going out on a monthly basis, and continue to keep it updated. The cash flow forecast should help to identify periods of time when cash is low. If you know ahead of time, you can prepare with appropriate financing or reduction of expenses. You need to know that you will have enough cash to pay suppliers, employees and taxes on time. The cash flow forecast will also help you to identify if there is an issue with accounts receivable (customer payments).
2. Send Out Invoices More Frequently
It’s a common practice for businesses to bill clients monthly. However, if you send regular shipments or perform frequent services for a client there’s no reason you can’t send invoices more often. If you make it a practice to send a bill after each shipment, you’ll receive more frequent payments. This is a simple way to improve cash flow for your business.
3. Implement an Automated Invoicing System
Tracking invoices manually is time-consuming and can contribute to cash flow problems. It’s easy for mistakes to slip through or to neglect to send reminders when clients fail to pay on time. There are various automated invoicing solutions. You can acquire a software program or outsource the task to a trustworthy service. This allows you to create templates and send out invoices and late payment reminders on a regular schedule. Implementing a consistent and automated invoicing system often results in clients paying more reliably.
4. Manage Outgoing Payments Carefully
Just as you want to increase the speed of incoming cash, you want to slow the speed of cash flowing out of your business. There are several ways you can slow the flow of cash outgoing on everyday business expenses.
- It may make sense to lease equipment instead of buying it. This lets you avoid putting out large sums of cash at once.
- Take full advantage of supplier extended payment terms by scheduling your bills to be paid the day before they are due
- Outsource more tasks. Outsourcing is often less expensive and more efficient than hiring full-time employees.
5. Use Invoice Factoring
One of the best ways to prevent cash flow problems is to use invoice factoring, a type of financing that lets you collect immediate payment for invoices. Rather than waiting for clients to pay, you get cash up front from the factoring company. Invoice factoring is a good option for small businesses that have difficulty obtaining bank loans as you don’t need perfect credit. Factoring companies usually base approval on your clients’ credit rather than yours.
Additionally, some invoice factoring companies, such as Riviera Finance, allow you to choose which invoices you want to factor and do not require you to factor your invoices every month. This is the great for seasonal businesses or months when your cash balance is low. Riviera Finance can help businesses of all sizes overcome cash flow problems. We are a leader in business financing, currently celebrating our 50 years in business.