How to maintain a steady cash flow?
by Ray Smith
For any business to be successful the most important factor is availability of ready cash and maintenance of a healthy cash flow. However, during day-to-day operation of business it is often found to be the most difficult task and every year a big percentage of the small businesses close down for lack of ready cash. Here are some tips that are really effective for small businesses to maintain a steady cash flow.
1)Incentivize Payment: If you are into one of those businesses where the clients tend to defer payments, try to introduce an incentive scheme for immediate payments. If customers would pay at the time of purchase you would not need to worry about collecting receivables and the cash flow will also be maintained at its best.
2)Credit from Vendors: Try to negotiate terms with your vendors and suppliers to get an extended credit period so that you dont need to pay promptly for your purchases. This will delay the outflow of cash from your accounts and less money will be trapped in your inventory. There are suppliers who would even offer a 60-day credit period and with such an extended period to pay you will hopefully have your receivables collected from your customers and use that to pay the vendors. This way you will not have to shell out your own cash or spend very little yet maintain proper supply of your raw materials.
3)Account Receivable Factoring: Factoring of accounts receivables is a very popular and affective way to maintain a healthy cash flow. Businesses that have long gestation period before the receivables could be converted to cash can always factor their receivables to get ready cash as per their requirements. It is particularly easy to factor your invoices if you are dealing with big companies or government agencies because the factors are more willing to take risk with invoices due from large corporations than with small businesses.
4)Ask for Advance: If you are in a business where you provide custom made goods to your customers as per their orders you can always ask them for an advance at the time of starting the project. This would reduce the risk of nonpayment as a part of the payment is already realized. Also, a healthy cash flow can be maintained very easily if you can negotiate a term of periodic payment with the customer, so that the customer pays you in parts as you progress with the project.
5)Savings Fund: Most businesses go through seasonal changes in sales volume, sometimes its good and sometimes it is slow. It is a very good practice to keep away a certain percentage of the total revenue in the savings fund that helps to operate and run the business smoothly during hard times.
All of these tips might not be applicable for your business, however, most of them are and with some effort and strict control on your business practices for few months you can get these things incorporated into your business policy. Once you have done that, you have won half the battle, because these principles are sure to increase and enhance your cash flow thereby helping your business to grow. So if you are still concerned about availability of cash, start working today and it wont be long when your business will have a healthy cash flow.
This article is written by Ray Smith, a marketing expert with years of experience in different industries and specialized knowledge on branding and Internet marketing. Factoring Financial Services
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