How to Improve Your Company’s Cash Flow
Those managing the finances of companies are forever tempted to focus on the bottom line above all else when it comes to the day-to-day management of a business. While incoming revenue is probably the most important thing, it is only a dull cliché to simply proclaim “profit is the most important thing” and then to proceed accordingly. Even if profit is paramount, the neglect of cash flow will see those profits stagnate, if indeed they don’t begin to dwindle. In that sense, looking out for cash flow as well as profit will ultimately lead to greater profits anyway. The trick, therefore, is not to get too preoccupied by the money coming in right now.
The Trouble of a Poor Cash Flow
Instead, you should focus on the money coming in and the money going out – and then reckon that over a set period of time. That is the definition of cash flow, something which is very much in your interests to keep healthy. A good cash flow will always ensure access to ample funds, a poor cash flow might see you unable to meet your financial obligations – even if there is enough money coming in overall.
A bad cashflow naturally arises when your incoming revenue is not only insufficient but timed in such a way as to leave you short for periods when you need cash. If you find yourself in this situation, then the chances are you will be running a small to medium sized business (having sorted cashflow problems is one of the markers of bigger, more successful businesses). For small businesses, growth is always on the agenda and a poor cash flow is sure to stymie growth – if it doesn’t totally sink the business.
And regarding the relationship between revenue and cash flow, it is wise to see revenue as reflective of how well you are selling your products, and cash flow as an indicator of how much money you have available for meeting obligations and investing in future growth.
Ways to Improve Your Company’s Cash Flow
So, if you would like to improve your cash flow situation and start planning for your business’s future, here follows three extremely useful cash flow tips:
Arrange Quick Payment Terms
Quicker payment, better cash flow – it really does always work like this. When you start thinking of cash flow as being intimately related to time, you are well on your way to sorting out your cash flow problems. It is especially important to try to get paid as soon as possible, as this frees up funds quicker and makes them available over a longer period. That means a better cash flow.
Consider Invoice Factoring
Invoice factoring is a service offered by specialized companies which pays you the value of your invoices the moment you create them, under the understanding that you will pay back the factoring company after the invoice is actually paid by the customer or client. The fee is usually a small fraction of the invoice value. FastFACTR, an invoice factoring company, advise that, while this can be an excellent solution to temporary cash flow problems, it is not a lasting solution.
Cut Unnecessary Spending
Tightening the belt is a solution for all sorts of financial woes, and cash flow problems certainly fall under that umbrella. Again, it is all about freeing up capital to see you through periods when there is less revenue coming in.
At the end of the day, if you have a cash flow problem then you need to act to solve it as quickly as possible. Do this successfully, and you can look forward to growth.