Managing your cash flow might sometimes feel like navigating through unfamiliar waters — challenging yet critical for survival and success. However, it does not have to be that difficult.
This guide will help demystify cash flow management, providing clear, easy-to-implement strategies. Whether juggling invoices, tracking expenses, or looking for ways to keep your business financially healthy, these tips for cash flow management will help you move forward with confidence.
1. Create a Cash Flow Forecast
Your journey begins with understanding your finances. Picture your financial forecast as the GPS for your cash flow management. This forecast helps you navigate through the months ahead with a clearer vision.
The process is straightforward: begin by jotting down all the money you expect to receive, such as sales revenue or customer payments. Then, turn your attention to your outgoings, including rent, employee salaries, and money owed to suppliers.
You can use a simple spreadsheet or input the information into an accounting software or platform. This exercise is about gaining insight into your business’s financial rhythm. It will show you when your cash might dip low and give you a heads-up to plan for those leaner periods.
By staying ahead of your cash flow, you are essentially putting on a financial lifejacket for your business, ready to keep you afloat through calm waters and big waves.
2. Negotiate Favorable Payment Terms
Negotiating more favorable payment terms is another important tip for cash flow management. Having just a few more days before an invoice is due can provide much-needed breathing room for your business’s finances. For example, if a supplier typically expects payment within 30 days, propose extending this term to net 45 or even net 60 days. Even small changes in payment terms can make a big difference in your cash availability.
3. Invoice Promptly and Follow Up on Payments
Another key piece of healthy cash flow depends on how quickly your customers pay you. But, unless you are a cash-and-carry business like in-person retail, they won’t pay you until you send them an invoice. So, it’s important to establish a routine of invoicing immediately after a service or a product is delivered. This immediate action sets the pace for them to pay you on time.
If you notice a payment is late, do not hesitate to send a friendly reminder. Open invoices can be costly, even if someone pays just a few weeks late. Send an email or make a courteous phone call reminding the customer of the overdue invoice. This often does the trick in expediting payment.
At the same time, consider ways to encourage your customers to pay invoices promptly. Offering incentives for early payments can be an effective tactic. For example, you might provide a small discount for payments made within a week of invoicing. Alternatively, setting shorter initial payment terms (net 30 or due upon receipt) can also nudge customers towards faster payments.
4. Undertake a Subscriptions Audit
It is common for businesses to sign up for subscription-based services. From software tools to monthly service deliveries, these subscriptions often renew automatically, making it easy to lose track of them. Conducting an annual review of all your subscriptions is a smart move for managing cash flow.
Start by gathering information on every subscription for which your business pays. Then, scan each service: Are you actively using it? Does it contribute significantly to your business operations or growth? If the answer is no, then cancel the subscription.
You can free up money by eliminating these unnecessary fees. Remember, every dollar counts.
5. Monitor Operating Expenses
Another important tip for cash flow management is keeping an eye on your day-to-day expenses. Regularly review your spending and ask yourself if each payment is necessary and if there is a cheaper alternative. Sometimes, small changes, like switching suppliers or reducing discretionary spending, can significantly improve your cash position.
6. Explore Short-Term Financing
Sometimes, you need a boost of cash for a short period of time. There are many options, including getting a line of credit, using CollectEarlyTM from FINSYNC, or getting a business credit card.
Each option works differently, so we have listed some helpful details:
• An additional line of credit is having a pool of money to dip into when needed. Check with your bank to determine interest rates.
• CollectEarly from FINSYNC allows you to get paid right away on net 30 invoices.
• Business credit cards work like personal ones but for your company. It is critical to pick the one that fits your business needs and what you can pay back comfortably.
The Bottom Line
Good cash flow management doesn’t require you to be an accounting expert. Getting started is something every business owner can do: (1) create a forecast, (2) negotiate better payment terms, (3) invoice promptly, (4) cancel unused subscriptions, (5) monitor expenses, and (6) be aware of short-term financing options. By using these 6 cash flow management tips, you lay the groundwork to help your business grow and create long-term profitability.
How FINSYNC Can Help
FINSYNC allows you to run your business on One Platform. You can send and receive payments, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.