Cash flow issues in the business are quite common especially if you do not maintain a proper record of your transaction. Cash flow problem arises when you are not able to make payments as and when the amount is due. It can be payments to your creditors, the company employees, the administrative, finance expenses and so on. Your company may be doing well in terms of sales and profitability but you may face cash flow issues in the business. Certain ways you can increase cash flows and solve cash flow problems are mentioned below.
Prepare a cash flow forecast
It is important that you maintain an accounting system in order to keep a track of your finances. An accounting checklist also helps.
It helps to prepare a cash flow forecast, as you can make use of previous year’s data to make a forecast for the current year. Cash flow forecast will enable you to see which months you can expect to see a cash deficit or surplus. Accordingly, you can manage your working capital to solve cash flow problems.
Managing inventory for small businesses is difficult. You must ensure that your working capital does not get blocked in excess inventory. If you have fewer inventories, then it will increase cash inflow but will affect the daily operations. A reasonable level of inventory should be stored in order to cater to consumers. It is difficult to decide the adequate amount of inventory, therefore inventory financing control should be done.
Offer discounts for early payments
You can reduce the credit period by offering discounts on the credit sales. You can offer discounts if your debtor pays you the entire amount earlier than the stipulated date. Discounts should be applicable only if the early payment is made before 10 days or so than the due date. This method can increase cash flows quickly. It should be noted that discounts are usually provided on large payments.
Move receivables to finance companies
You can either accept payments from your debtors through a credit card facility or you can search for finance companies which will offer loans to your debtors. In both cases, you will get the payments immediately which will increase cash flows. You don’t have to go after your clients to collect the receivables. The finance company is usually a bank who will manage it.
Reduce the credit period
Another method to avoid cash flow issues in the business is by reducing the credit period. However, when a company receives huge orders the credit period is for a longer duration. You can reduce the credit period of clients who do purchases in smaller quantities. For larger amounts, you can take some money upfront in advance. You can also collect payments in small amounts, say for a full payment of $100, 000 ; you can ask them to pay ten thousand every month. This will lead to cash inflow for every month and solve cash flow issues in the business.
If you are looking for any assistance relating to cash flows or accounting services for your business get in touch with a professional accounting and book-keeping service provider.