Effectively managing cash flow is an integral aspect of small business success. Keep in mind that your company can show a profit and still experience negative cash flow if your expenses are greater than your income. Here are some tips on how to maintain positive cash flow even after you’ve used a significant amount of your working capital.
Collect on Receivables
To ensure steady cash flow, make your receivables collections as efficient as possible. Send out detailed invoices immediately after goods are delivered or services are completed. Request deposits for larger orders. Offer discounts to clients that pay promptly, and send out reminders as soon as bills are overdue. To facilitate quick responses, offer customers a link for easy credit card payments.
Convert Assets Into Cash
Take a close look at inventory and equipment that’s sitting idle and determine if these items are still needed or might better be converted into cash. Unused equipment takes up storage space and risks becoming obsolete, and excess inventory loses its value as new materials hit the markets. Selling what you don’t need clears space and provides additional working capital.
Slow Down Payments
Instead of paying your vendors early, hold onto your cash until payments are due. Balance early payment incentives with the desirability of keeping the funds available in your account for as long as possible.
Prepare for Emergencies
Cash flow shortages inevitably occur, but do your best to prepare for them so that they cause minimal disruption. For instance, establish a line of credit with a financial institution when things are going well so that you have it when you need it. Keep aside a buffer of cash that you can use for emergencies. Anticipate emergencies through risk analysis and cash flow forecasting, and prepare ahead of time for possible shortfalls. For major purchases such as real estate or large equipment, consider long-term financing instead of using your working capital.
For more advice on maintaining cash flow, contact Blackwater Capital Funding.