How To Improve Your Company's Cash Flow

Is your cash tight? Does your business have more money going out than coming in? No business operates without cash flow challenges, but financial stability and success come with paying close attention to your cash flow. Improve your business processes that directly impact your cash flow to ensure business continuity.

Study your cash flow patterns

To improve your cash flow, you need to dig deeper into the negative and positive cash flow swings because chances are there's a pattern. If you perform a cash flow analysis, you can spot the pattern ahead of time and prepare yourself earlier to improve the cash flow.

Negotiate quick payment terms

Ask your clients to deliver payment in a timely fashion. If your accounts receivables time is too long, it will put you in a cash flow shortage, even if your business is highly profitable. To help speed up payment, revise your payment terms with clients and also ask for a partial deposit upfront from late payers. The maximum payment period should be 45 calendar days. If your clients are late on a payment, instantly reach them out with a reminder.

Check accounts payable terms

As you speed up processing accounts receivable, consider the opposite strategy for cash outflows (accounts payables). Instead of sending out a check as soon as you receive a bill, wait as per the terms to prevent a cash shortage. Contact vendors and ask if they'd give you longer payment terms or if you could get a discount for paying early.

Shorten your DSO

A DSO(Days Sales Outstanding) is the average number of days it takes a company to get paid for completing a job. When you invoice customers in a B2B transaction, you wait for payment between 30 and 90 days. The best way to improve your cash flow is to shorten your DSO ideally to 45 days. You can ask customers to pay by credit card or deposit upfront to minimize your exposure to late payments.

Revisit the pricing model and eliminate unprofitable products

If you have surplus stock that may be at risk of being outdated or less profitable, hold a sale to move those products. Implement a "just-in-time" inventory model to reorder your stock only when you need it.

Automate the process of invoices

Taking control of your finances is vital to set your business up for future success. And managing invoices is the fundamental aspect of improving your financial processes. Use accounting software to promptly send out invoices to your customers and follow up with late payers. You can also check the balances of your cash accounts, cash expected to come in, and cash expected to go out in real-time.

Maintain your cash flow forecast

You can have weeks of foresight of your business's cash position if you regularly update your cash flow forecast. When you maintain an accurate forecast, you will identify and manage to survive unexpected events or any tighter cash periods. It will also help you improve your cash flow for the coming months and allow you to make informed decisions for your business.

Seek Help from Advisors At ScottValleyBank

Successful business owners surround themselves with smart people because they know that these experts can do wonders for their focus, confidence, and decision-making abilities. At ScottValleyBank, we have a team of experts to support you and your business growth. Our consultants will advise you on key purchasing decisions and provide long-term financial strategies and solutions to address your day-to-day money needs so you can minimize your risk and tax liability. Together, we can make your business stronger.

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