Maintaining a positive cash flow is crucial for the growth and sustainability of any business. Effective cash flow management goes beyond sales and involves careful control of expenses and operations. It's alarming to note that insufficient cash reserves are one of the leading causes of business failure.
In times of crisis or when faced with challenges that impact your business continuity plan, it becomes even more essential to focus on improving cash flow. So, how can you take proactive steps to ensure a healthy cash flow?
Here are 12 practical tips to help improve cash flow and get operations on the right track during a crisis by optimising how to get paid, manage operational expenses and refocus your sales and marketing.
How Can You Increase Monthly Cash Flow?
1. Send out Invoices as soon as possible
Promptly sending out invoices is crucial for ensuring timely payment from customers. Consistency is key in this process, setting clear expectations by sending invoices at the same time each month. If manual invoicing becomes burdensome and leads to delays, it may be worth considering an accounting software solution that can automate this task.
However, sending an invoice doesn't guarantee immediate payment, and cash flow issues can arise from late or missing payments. To increase cash flow, it's important to focus on getting invoices paid on time or even earlier.
To facilitate timely payments, implement the following strategies:
2. Send Invoice Reminders
Set up email reminders a few days before the due date, on the due date, and again if payments are past due. Many accounting software solutions offer automated invoice reminder features.
Follow Up with Late-Paying Customers: If necessary, make phone calls to customers who are late with their payments. Before calling, ensure that they have received the invoice. Consider assigning someone in your organisation who is skilled in handling these calls or help an employee develop the necessary communication skills.
3. Explore Invoice Factoring
If tightening payment terms doesn't significantly improve cash flow, invoice factoring can be considered. Invoice factoring involves selling unpaid invoices to a financing company (known as a factor) for an immediate percentage of their value, typically around 80%. The factor collects on the invoices, deducts a set percentage fee, and provides the remaining amount to your business.
How Can Operating Cash Flow Be Improved?
4. Streamline Payroll Processes
Switch to Direct Deposit: Replace paper checks with direct deposit to eliminate delays caused by check processing and clearance.
Shift to Bi-Monthly Payroll: Instead of a bi-weekly schedule, consider paying employees twice a month on set days. This avoids the challenge of handling three paychecks during certain months, which can strain cash flow.
5. Conduct an Inventory Check
Evaluate Product and Service Performance: Objectively assess your offerings and avoid tying up resources in stagnant goods. Explore options such as selling excess inventory to bulk discounters or offering bundled discounts to free up cash.
Analyse Sales Patterns: Review sales patterns and adjust stock levels accordingly, particularly during peak periods. Avoid ordering the same quantity of inventory each month, as it can lead to excessive stock and tie up cash unnecessarily.
6. Optimise Supplier Payment Timing
Delay Payments Strategically: Whenever possible, defer vendor payments while staying within agreed-upon payment terms. This approach slows the outflow of cash, especially if there are no late payment fees involved.
Maintain Supplier Relationships: While delaying payments, maintain open communication with vendors. Respond promptly to any inquiries regarding late payments, explaining the reasons behind the delays. Work collaboratively to establish mutually acceptable arrangements for bringing payments up to date.
How Can Sales And Marketing Improve Cash Flow?
To enhance your business's sales and attract more customers, consider implementing the following strategies:
7. Subscription Sales for Routine Purchases
Introduce Subscription Model: For customers who make regular purchases, offer a subscription sales cycle where they prepay for future products or services. This approach ensures future sales and secures upfront payments, improving cash flow predictability.
8. Reevaluate Your Marketing Approach
Explore E-commerce Solutions: If it aligns with your business model, consider investing in e-commerce platforms. While there may be initial costs associated with implementation and personnel, the potential increase in sales can quickly offset these expenses.
Utilise Online Advertising and Email Marketing: Leverage your existing online presence by investing in targeted online advertising and implementing effective email marketing campaigns. These strategies can help attract new customers and encourage upselling to existing ones.
9. Leverage the Power of Happy Customers
Create a Referral Program: Encourage your satisfied customers to refer your business to others by implementing a referral program. Offer incentives such as discounts or credits for customers who bring new business your way. This leverages the positive word-of-mouth effect and expands your customer base.
How do I Improve Cashflow in a Crisis?
10. Explore New Revenue Sources
Identify Untapped Opportunities: Assess if there are products or services with low upfront costs that have the potential to generate substantial revenue. Find innovative ways to build volume, such as offering additional services like installation or maintenance, or renting out unused space in your owned properties. Embrace creativity to unlock new income streams.
11. Evaluate Debt as a Strategic Move
Understand Your Business Situation: If you anticipate a return to normal operations within a reasonable timeframe, consider utilising your line of credit or low-interest loans to bridge the gap. However, exercise caution and thoroughly evaluate the potential impact on your business's financial health. Ensure confidence in the ability to restore revenue streams after the crisis before pursuing this option.
12. Cut Unnecessary Expenses
Prioritise Cost Reduction: Before resorting to salary cuts or layoffs, scrutinise your expenses and identify areas where quick adjustments can be made. Question the necessity of certain expenses and explore cheaper alternatives.
Review Software Licenses: Assess software licenses to determine if all current subscriptions are essential.
Limit Employee Travel: Restrict non-essential employee travel to minimise expenses.
Evaluate Contractor Usage: Consider reducing non-essential contractor agreements without overburdening existing staff or jeopardising core business operations.
Trim Perks and Non-Essential Costs: Temporarily scale back on perks like company lunches and reassess the offerings in your company kitchen.
By adopting these measures, you can optimise revenue generation, reduce unnecessary expenses, and position your business for financial stability.
