Virtually all businesses at some point or other experience cash flow problems, even when there are no unusual expenses to affect the monthly bottom line. All it takes is for incoming revenues to be either less than expenses or not sufficiently greater than expenses – which can easily happen as a result of customers being slow to pay on invoices.
While revenues may be unpredictable in their arrival, revenues are always due at the same time each month, so your business can often have a built-in mismatch, which you experience as a cash flow shortage. Here are a few things you can do to overcome that gap in cash flow, and keep your operations running smoothly.
Improve your inventory management
You can have a lot of resources tied up in inventory that just sits in the warehouse, adding no value to your business. If you suspect this may be the case, conduct a thorough review of your inventory on hand, and determine which products are moving, and which are gathering dust. Those which appear to have stagnant sales should be sold off, even if you end up selling at a significant discount.
Seek better terms from suppliers
You can often save money on raw materials from your vendors if you offer to pay early, or in cash. Many suppliers are willing to offer volume discounts, and as long as the extra inventory doesn’t end up sitting on your shelves, it might be worth your while. All this requires that you maintain good business relations with your vendors, so ideas which benefit you both can flow freely.
Consider making electronic payments
The great thing about using electronic payments is that you don’t have to pay bills until the precise morning they’re due. This keeps cash in your bank account for the maximum time possible, and gives the use of it to you rather than to your suppliers or anyone else who has invoiced you. A related idea is to make use of a business credit card, some of which allow grace periods for payments up to three weeks. This too keeps money in your accounts for a longer period of time.
Form a buying cooperative
While this may not work in every kind of business, it can be extremely effective for some. If you have colleagues or even competitors who need to purchase some of the same goods as you do for business, it can be very helpful to pool your efforts (and your cash) to obtain significant discounts when purchasing.
When you send out invoices a week or more after a purchase is made, you’re delaying your own payment and contributing to cash flow problems. Invoicing in cycles may be efficient, but it doesn’t help your cash flow, so invoice customers immediately to start the clock ticking on payments.
Try price increases
Granted, this can be a fine line to walk, since some customers might be willing to pay the current price, but not something that’s $1.00 higher. By closely monitoring sales activity, you can tell if price increases turn off a segment of your customer base, and if not, your incoming revenue is bound to provide a little more breathing room on your tight cash flow situation.