There's an old business saying, "Happiness is a positive cash flow." Operating at a profit is important for any business. But, if your customers aren't paying you, or not paying you on time, profits on your income statement won't help you pay your bills. Only cash flow can do that.
Below are five tips for keeping your business's cash flow healthy.
Complete customer credit checks
Before bringing on a new customer, perform a credit check to make sure that they have the capacity to pay you. It's better to find it out upfront rather than once you've invested time, dollars and resources into completing their job.
Invoice promptly and follow up
Invoicing as soon as a job is completed and following up on outstanding receivables are critical tasks if you want a healthy flow of cash for your business. Not having a formal process to accomplish these tasks is one of the main reasons that businesses end up with cash flow problems.
Have a formal process to plan for and track cash flow
In the same way that you budget for your monthly income and expenses, you should budget for cash flow. When you know what payment terms you're prepared to offer customers (and stick to them), you can predict when cash will be received. If you prepare a budget that shows this along with budgeted cash outlays, you can predict the highs and lows of your cash flowÉand plan accordingly. Miss this all important step and you'll constantly be blind-sided by cash flow problems and scrambling to find solutions.
Manage how and when you pay your bills
Wherever possible, negotiate payment terms with your vendors that match the terms you offer your own customers. That gives you the flexibility to pay your vendors at the same time that your customers will pay you. A word of caution: sometimes getting extended terms from a vendor means missing out on early payment discounts, preferred pricing or bulk purchase incentives. You need to balance your decision on the terms you'll request based on what will be the best financially overall for your business.
Have a 'back pocket' plan
It's the nature of business that, even when you plan well, there will be times when cash flow becomes a problem. Have a Ôback pocket' plan on how you'll find the cash during those times to pay bills and grow your business. A business line of credit can help you during these low cash flow times.
For those times when a traditional line of credit isn't practical or available, Accutrac Capital Solutions offers its unique Factoring Line of Credit. A Factoring Line of Credit comes with all the benefits of factoring combined with a line of credit where you only pay factoring fees for funds drawn.
Remember, having positive and flexible cash flow is your business's best survival skill.