If you own a firm and your sales or top line are expanding year after year, you’re doing something right. But don’t rest on your laurels and let the ball drop. Cash flow issues can arise even in profitable businesses if finance, operations, and investing activities are inefficient.
For example, if your payables (debts) are due before your receivables (money from sales) arrive, you’ll have cash flow issues. This implies you won’t be able to pay your expenses on time, leading to broader issues like late payroll and creditworthiness.
If you want to know how to avoid cash problems and enhance cash flow, consider applying some of the following measures.
1. Have Debt Recovery Methods in Place
Non-payers or late payers can be a significant drain on a company’s cash flow. You are quite rightly expecting invoices to be settled on time, and if even one person doesn’t pay up, it can throw your whole budgeting out of the window.
Before you need to use debt recovery methods, have a system in place to trigger this if required. A Cannabis Debt Collection company assists those in the legal cannabis retail sector get back the money owed to ensure no one is left out of pocket.
Look for a company specializing in your industry and has a proven track record of getting back owed funds.
2. Invoice Immediately
As soon as you complete the work or fulfil the order, send your invoice immediately while it is still fresh in the client’s mind. This way, you can benefit from faster payments.
You’ll want your invoices to be simple to understand, with the payment terms written. It’s a good idea to put the due date on your invoice in several places (ideally in bold). Include it at the top of your invoice and on your payment slip at the bottom.
Include explicit instructions on the forms of payments that will be accepted. Remember to add any late payment fees that you charge in your disclosure statement as well.
3. Lease Don’t Buy
It may seem illogical to someone who solely cares about the bottom line, or the amount of money left over after all expenses have been paid off, to lease supplies, equipment, and real estate rather than purchasing them because leasing is typically more expensive than buying.
However, unless your firm is rich with cash, you want to ensure that you have enough money on hand to cover day-to-day operations.
You can enhance your cash flow by leasing because you can pay in small amounts. An added benefit is that leasing payments are considered a business expense. As such, can be deducted from your taxable income.
4. Improve Stock Levels
Make a physical inventory of your stock levels. Make a list of the goods you have purchased that aren’t moving at the same rate as the rest of your inventory. They can cause significant cash flow problems by tying up large amounts of cash.
Instead of purchasing more of what isn’t selling, get rid of it. Even if it means selling it at a loss.
It’s difficult to walk away from items you’ve fallen in love with, in the hopes that one day demand would miraculously increase, but that virtually never happens.