Cash flow management is important regardless of the size of a business. This is because the financial health of a business determines its success or failure. Considering that most small businesses do not have sufficient funds to play around with, the impact of negative cash flow is more evident with them.
To scale this challenge, you can employ the following cash flow management strategies for small businesses.
1. Establish Quality Relationships with Lenders
Do not wait until your small business is in dire need of cash before you start seeking finance. Apart from the fact that you may not get the funds needed, the ones which are made available may come at a high price capable of eating deep into your expected profits.
By building good connections in your financial community, it becomes easier to get help when it is needed. It is possible to secure good loans against assets such as accounts receivables, equipment, and inventory.
2. Encourage Early Payments
When customers receive an invoice, the tendency is to wait until the last possible date before making payments. This should be discouraged for your business to stand any chance of maintaining a positive flow of cash.
Apart from sending in an invoice right after a transaction is completed, you can encourage customers to make early payments by offering incentives such as a discount or charge them an interest if they pay at a later date. Determine how you want to do this in advance and stick to the policy.
3. Avoid Surprises
This is simpler for those who have been in business for a while. Once the accounting records you keep are accurate and likely, it is easier to draw on your past monthly income to make future predictions.
The knowledge of what is required in the near future can help you make adequate preparations such as seeking out loans in advance to avoid being stranded for cash when it is needed the most.
4. Avoid Keeping Idle Cash
Rather than keep your cash idle, it is good practice to invest it in interesting-earning accounts. No matter how little the interest may be, it beats earning nothing at all. In your bid to keep your cash working, avoid investing it in long-term certificates since you may need your cash sooner than later.
Besides, such investments may even cost you some interest should you decide to call it in before it is due for payment.