Let’s face it, I can give you 10 ways to improve your cash flow. However, then you would feel overwhelmed and and not know where to start. So instead, I’m going to simply give you 3 action steps you can implement today to improve your cash flow!
1. Follow Up on Payment
The simplest way to do this is by getting into the habit of sending monthly statements to your customers. Sending statements is a simple reminder that your customer still owes you for the services your company provided.
Are you hoping for a quicker result? Pick up the phone. I know it’s not a fun call to make, ever. Keeping your collection calls friendly and professional makes it easier on both parties. My experience is that more often than not, the customer simply forgot to mail your check or they never actually received your invoice. Other times, the squeaky wheel gets the grease. Meaning, if you are the vendor that speaks up, you might be the lucky one who gets a check in their next check run. It pays to pick up the phone.
2. Negotiate Your Vendor Terms
Take a look at your cash flow cycle. Your business’ cash flow will benefit greatly if you’ve spent the effort to line up your bills that are due, after you receive payment from your customers. Let’s pretend you manage a digital media agency where you manage media for your clients. It doesn’t make cash flow sense to pay your customer’s media bills before your customer pays you. Work with your vendors and customers to align the payment terms. Request your vendor bills to have due dates that fall after the date you expect payment from your customer.
Another tip is to take advantage of any early payment incentives offered by your vendors. Often times suppliers will offer a 2-3% discount, if a bill is paid within 15 days of receiving the bill. If you have the cash flow, these early incentive payments can really pay off!
3. Create a Good Forecast
A lot of businesses use budgets to track their expected sales and expenses. However, I challenge you to take your budget a step further and forecast your cash flow cycle. This is the best way to get a handle on your company’s cash flow. A cash flow forecast is like having a crystal ball that helps you look into your cash flow future. It allows you to see when you have cash abundances and cash shortages. By having this insight, you can better plan for the periods of cash shortages and will no longer be surprised when they sneak up on you.
Another neat feature of a forecast is the ability to play around with different scenarios. Curious how the new employees your business is thinking about bringing on will impact your cash? Want to know what a period of growth will do to your cash flow? A forecast can help you plan for the related expenses you will incur to grow your business and help you decide if your business has sufficient cash to support your growth plans!
Now use your motivation and excitement to take action to improve your company’s cash flow!