Cash flow. It’s the dreaded two-word phrase that blights so many businesses worldwide.
Some of these businesses seem entirely successful at first glance. They’re attracting customers at stupid rates, but suddenly, the money dries up.
New businesses are particularly at risk of these issues and if you happen to fall into this category, read on to find out how you can manage your cash flow in your first years.
Don’t be afraid of an overdraft
Debt is something that can scare the life out of new entrepreneurs – but it doesn’t have to be like that.
Let’s take overdrafts as an example. These are almost made for cash flow issues. Let’s not forget that a company with poor cash flow isn’t necessarily an unsuccessful one; it’s just that the money coming in is delayed versus the money that is paid out.
This is where an overdraft can work miracles. It can provide that stop-gap as your incomings and outgoings align.
Don’t be afraid to ask for extended payment terms
If you’re buying products or services from other businesses, there’s a good chance they will be willing to offer you extended payment terms.
This means that instead of paying for your goods or services immediately, you can give yourself a bit of breathing room by agreeing to a 30, 60 or even 90-day period.
Of course, this isn’t always possible. After all, many fixed costs like rent and even insurance premiums are usually going to have non-negotiable payment terms. However, particularly when buying stock or capital assets, extended payment terms can be more common.
Keep on top of invoicing
This may sound like an obvious one, but it’s incredible how many businesses let their invoicing slide.
Remember, if you’re not invoicing, you’re not getting paid. It’s as simple as that.
Make sure you have a system to issue invoices and chase up payments. This will ensure that money keeps coming in and your cash flow stays healthy.
Your own payment terms need to suit your business
There’s no right answer when it comes to payment terms. Some companies will insist on 30 days, whereas others will stretch.
The right answer for you depends on your business and industry. If you happen to be involved in an industry where the standard is 90 days, asking customers to pay within 30 is unlikely to go down well. It might happen, but you’re going to have to have some huge USPs to convince them.
It’s not just your customers you need to think about, either. Remember, cash flow management is all about aligning your incomings and outgoings. In other words, if you’re paying your own suppliers with thirty-day terms, can you really afford to offer your own customers much longer than this? Probably not.
Consider using a factoring company
If you’re struggling to keep on top of your cash flow, you might consider using a factoring company.
A factoring company will effectively purchase your invoices from you, meaning that you get paid immediately – rather than waiting for your customers to pay.
Of course, there are fees involved in this – but it can be a lifesaver for businesses struggling to keep on top of this. However, the best solution is to adhere to the four previous points – they will keep you from straying.