We’ve now realized how easy it is for any business to face a cash flow crisis, and that virtually no business is safe. For some, this might mean having to implement a solid plan to avoid cash flow issues for the future. Others might currently be fighting for their lives because they failed to apply sound cash flow management practices. It’s never too late to learn how to manage your cash flow better and be prepared for a rainy day. Here are four cash flow management tips for small B2B companies.
Get Control over Your Invoicing
Invoicing and billing your customers is key to getting cash in. One way to improve cash flow is to get into the habit of sending invoices immediately instead of eventually getting around to it.
Consider asking for deposits upfront to help pay for bills. You may also want to set up systems so that you’re paid in installments as work progresses. This is a reasonable request since you’re buying materials or paying for labour as work is done. This will allow you to avoid the risk of running out of cash before finishing the job.
You also need to aggressively follow up on slow-paying customers too. Have a system for sending late invoices to collections or selling the debt to raise money. You may want to adjust payment terms, require payment upfront for products to be shipped, and shorten the time frame people have to pay. For example, change invoices so that customers have 30 days instead of 60 or 90 days to pay you.
Maintain Your Books
Another thing you should do is update your accounting information regularly. This will let you know when revenue is dropping so you can take action to increase it, whether you invest in additional marketing or follow up on past-due invoices.
It also allows you to know when cash is tight so you can delay purchases or prioritize expenses. You could then take steps to avoid debt or shop around for the best loan terms. Short term business loans can help with cash flow problems, and these could help you take care of important functions before you run out of cash. You can choose a loan with the payment period or interest rate you can most easily afford. You should always try to plan out well in advance how you’ll finance big expenses instead of scrambling when the bill comes due.
Pay Attention to Customer Behaviour
It isn’t enough to pay attention to income versus outgoings for the business as a whole. You should also pay close attention to the behavior of each customer or account. If someone is slow to pay, remind them of their obligation to pay. Don’t be afraid to make a formal request to get current on their account or prohibit additional purchases until they’ve caught up. You may want to drop customers who require repeated collection efforts and invest that effort into more profitable customers.
Know Your Numbers
Getting control of your accounting system allows you to track income and outgoings while ensuring you pay your bills on time. Up to date accounting information is also necessary for knowing key business metrics like your operating margins, receivables aging, and inventory turnover.
For example, knowing how long inventory sits on the shelf will allow you to determine the best time to order more without over-stocking. If you know the average age of receivables, you know to take action if that number is going up. If you know that margins are shrinking, you can act before losses start.
Monitor your cash reserves, so you always have a cushion to cover unexpected bills in addition to upcoming expenses. You may have to bring in an accountant to calculate these key metrics and set up reports so you can monitor them yourself.
You may have heard the saying that cash is king. However, cash flow is the key to your business’ survival and success, so make sure that you take the steps necessary today to improve it.