One of the most important tasks in running a business is managing your cash flow. Without steady cash flow you can’t pay employees, maintain inventory, invest in your business or continue to grow. Despite how important it is to maintain this asset of your business, it can arguably be one of the more difficult areas to manage. It involves much more than simply making sales. You have to ensure you can collect on the cash once the sale as been made and continue to foster your relationships with customers.
We’ve gathered FIVE easy steps to start you off on managing your cash flow correctly.
HOW TO MANAGE YOUR CASH FLOW
SET A GOAL
Every year you should be setting a goal on how much revenue and profit you want to make for the year. By creating a goal like this, you have something to strive for in managing your cash flow. You will be able to easily monitor if you’re missing the mark on how many sales you are making AND if you aren’t collecting enough cash from your customers. This will help drive both your sales team and accounts receivable team to work more strategically.
COLLECT RECEIVABLES ASAP
It’s not just important to collect on your receivables, but to do it as quickly as possible. The longer and more often you allow customers to push the limit, the more likely they’ll do it often. Send invoices to customers as soon as the product or service is delivered and regularly send payment reminders. The longer you let an invoice go unpaid, the more likely you won’t collect on the full amount and this will hinder your efforts in better managing your cash flow.
GET CUSTOMERS TO PAY FASTER
There are a variety of ways you can go about incentivizing your customers to pay faster. The first and easiest option is to make it easy for your customers to pay. Give them a payment portal where they can quickly and easily make an ACH or credit card payment. The easier it is for them to pay, the more likely they will do it quickly. Another option is to offer a discount on making an early payment. This could be as minimal as a 2 percent discount for getting the payment in before the NET-30 terms is up. Lastly, you could choose to penalize customers who are late on payment by charging a late fee, however be careful with this option as it can cause hard feelings in your relationship with the customer.
PLACE SOMEONE IN CHARGE OF CASH FLOW
Make sure that someone in your company is in charge of monitoring the cash flow. This could be your accounts receivable manager or a controller. This person should know at what threshold cash flow is not meeting the demands to stay on track with your annual goal. This person should also have the authority to make changes and implement policies to get cash flow back on track, if they see that it is not meeting expectations.
There are many great tools out there that can help you monitor and increase your cash flow. For example, automated accounts receivable software will help you to invoice customers, send payment reminders, allow customers to pay online and monitor your cash flow using cash flow forecasting tools. This takes the burden off employees having to do this work manually and frees up time that could be spent on more strategic tasks.