7 Tips for Managing Cash Flow Effectively


Managing your cash flow effectively requires close attention, just like managing the rest of your business. The good news is that a little attention can go a long way towards improving your overall cash position, but it requires “changing” the way you look at some of your operating processes.
Here are a few suggestions that when acted upon quickly, will have an almost immediate impact on your cash flow and cash position. Again, the key word to embrace is the need to “change.”

1) Enforce your pricing and term policy – You need to impress upon everyone in the company the importance of discussing pricing and payment terms during the sales process. Often the emphasis is placed on “getting the sale” not “getting payment.” When your customers delay payments, they’re using your cash and costing you money. You need to ensure that you are diligent about setting payment expectations right from the beginning with your customers.

2) Invoice and follow-up promptly – The sooner you send out the invoice, the sooner the clock starts ticking for a customer to pay. Issue invoices promptly and follow-up immediately if payments are slow to follow. Send invoices daily or find a way to bill everything on the day it happens.

3) Review your payment options – Do you only accept checks? You want to make it easy for your customers to pay, so consider offering a variety of payment options. Welcome debit or credit card payments. You will find that invoice printing, mailing, waiting, waiting some more, calling on collections, receiving the check, applying the payment, going to the bank, and waiting for the check to clear costs much more than the 2% incurred when taking a credit or debit card.

4) What’s in our inventory? – When was the last time you took a look at your inventory? Often 20% of that inventory is turning while 80% sits idle, taking up space and costing money to finance. Running a sale or re-merchandising is often all that is needed to free up this cash. It may even make sense to move inventory that’s sitting around at a loss, as most items don’t increase in value as they age.

5) Everyone loves a discount! – When you purchase goods or services always ask if there is a discount offered for paying early or with cash. A 5% discount for paying now versus in 30 days is like getting a 60% discount on an annual basis. Don’t be afraid to ask, the worst they can say is “no.”

6) Customer deposits – If you’re offering aggressive pricing or giving concessions, you may be able to ask your customer to pay a deposit at the time of order, or prior to starting a job. This helps cover your up-front costs, and the risk associated with non-payment is decreased when your customer has some investment in the transaction.

7) Require a minimum order for credit sales – Invoicing, collecting, receiving and depositing checks is a time-consuming and expensive process. According to http://www.gohenryreview.com, establishing a minimum credit purchase requirement eliminates having to chase small amounts, promotes larger orders and collects payment for smaller ones at time of sales. A smart business move!

Cash flow is the life’s blood of your business and changing your operating processes to promote good “cash” circulation is a way to keep your business healthy, vibrant and able to meet its obligations.

By Brian Bach, Director, Michigan CFO Associates