Increasing Cash Flow

Cash flow is vital to any business. The primary reason any company has a loan or a line of credit is because they did not have the cash. Some capital to buy large equipment, a facility, etc. is needed rather than tying up working capital. The question to ask related to your cash flow position is are you borrowing due to strategic reasons or because you are short on working capital?

 

Here are some steps to consider to increase your cash on hand: 

  1. Look at your invoicing. Waiting 30 days to send an invoice adds time to your days sales outstanding.
  2. Establish a collections policy. After you send the invoice, how is payment being monitored? An open AR needs someone to manage it. Aging invoices become more difficult to collect.
  3. Enforce the collections policy. What steps do you take once you have identified an aged invoice? Do you make a call? Send a reminder? Actions need to occur.
  4. Examine credit cards. They will expedite cash flow, but is their cost too high? There are options to reassess and negotiate different credit card costs.
  5. Examine your sales acceptance policies. Details are addressed in a separate article. In short, sales acceptance is taking a heavily discounted or high-risk customer that can create a slow pay drain. This causes you to borrow (or worse) end up with a customer who defaults on payment.
  6. Look at your pricing. It could be a sign that your pricing might not be correct. It is easy to sell underpriced services or products.
  7. Finally, reexamine your costs. It’s possible some products or services might not be properly priced due to their cost accounting calculations. Other cost allocations such as rent, insurance, etc. might need to be revisited to determine if your profit calculations are correct.

 

Need to talk about your processes? We can help.

 

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