Invigorate Your Company’s Cash Flow With These Tips
Cash flow is often called the life blood of a business. Just like blood flowing through the human body, the flow of cash can spread through the business to purchase materials for all the various departments, pays salaries, and keeps the utilities flowing. When cash becomes limited, or the inflow is less than the outflow, a company’s growth can become stagnate. Building a cushion of cash can be critical to long-term growth, and the easiest way to do that is by quickly converting sales into cash. Here are four tips to help invigorate your company’s cash level.
Discount programs have become popular in recent years and can help speed cash collection. Typical discount terms often offer a 2 percent discount on monies owed if remittance is made within the first ten days following receipt of the invoice. While this can help cash flow, be wary of customers that take the discount and pay long after the 10-day mark. Some companies also institute a late-payment penalty for remittance made after 45 days. Although late penalty collection is not always possible, interest penalties have become a popular means of convincing customers to pay on-time.
Some vendors offer deep discounts on general product prices in return for cash payments. Although this may appear counter intuitive to helping your company’s cash flow, it can be beneficial. If the discount is significant, the savings can justify the use of cash. Additionally, some suppliers may be willing to barter for a portion of services or products provided by your company. If it is a new vendor or supplier, be sure to get the terms in writing to alleviate problems with negotiated provisions.
Offering credit has become an almost expected way of conducting business in this modern world. However, accounts receivables can become a problem when the accounts become too extensive, or the payments are more than 60 days past due. Pursuing these accounts can require a good deal of effort by staff and can cost more than the customer owes. At that point, it is often beneficial to turn to a third-party collection service. You can either sell the delinquent accounts to the agency or offer a percentage of the collected monies. Either way, your old account receivables can be cleared, and you may have a boost in cash levels.
Cash flow can be critical to the health of your company. However, financial flexibility can be just an important when fending off an uncertain economic stumble. By building up a cash reserve and taking advantage of available discounts, you can invigorate your company’s cash levels and often prevent unexpected financial situations from distressing your business.