Get better at Cashflow
Improving your cash flow requires proactive management of both inflows and outflows. You’ll want to speed up customer payments, reduce unnecessary expenses, and forecast cash needs.
Think about using cloud accounting for real-time monitoring, maybe offer faster digital payment options, incentivise early payments, and maintain a ‘rainy day’ cash reserve.
Now let’s look at how to get better at cash flow:
1. Accelerate Cash Inflow (Get Paid Faster)
Automate Invoicing: Send invoices immediately upon completion of work or delivery of goods.
Offer Diverse Payment Methods: Accept credit cards, bank transfers, and digital wallets to make it easy for customers to pay instantly.
Incentivise Early Payment: Offer small discounts (e.g., 2% off if paid in 10 days) to encourage faster settlement.
Tighten Credit Terms: Reduce payment terms from 30 days to 14 or 7 days, and strictly follow up on overdue accounts within 7 days.
2. Manage Cash Outflow (Reduce & Delay Costs)
Negotiate with Suppliers: Ask for longer payment terms. For example moving from 30 to 60 terms. Or suggest installment plans.
Review Expenses Regularly: Cut non-essential spending and analyze recurring costs to reduce overhead.
Manage Inventory Efficiently: Adopt just-in-time inventory to avoid tying up cash in stock that sits unsold.
3. Monitor and Plan (Forecasting)
Create a Cash Flow Forecast: Project your income and expenses monthly or weekly to identify potential shortages before they happen.
Use Cloud Accounting Software: Use tools like Xero or QuickBooks for real-time, up-to-date visibility into your financial position.
Build a Cash Reserve: Set aside a portion of profits for emergencies and to cover quiet periods.
4. Proactive Financial Strategies
Review Pricing: Ensure your pricing supports your costs, sometimes low volume/high margin is better for cash flow than high volume/low margin.
Leverage Financing: Consider a line of credit or business overdraft for short-term gaps, rather than relying on high-interest credit cards.
Get Expert Advice: Use an accountant or bookkeeper to regularly review your cash flow statements and provide strategic advice.
If you would like to know more about getting better at cashflow management please contact me paul@congdonfuzi.com.au