Cash flow for any business is the money that is moving (flowing) in and out of your business in a month. Although it does seem sometimes that cash flow only goes one way – out of the business – it does flow both ways.
- Cash is coming in from customers or clients who are buying your products or services. If customers don’t pay at the time of purchase, some of your cash flow is coming from collections of accounts receivable.
- Cash is going out of your business in the form of payments for expenses, like rent or a mortgage, in monthly loan payments, and in payments for taxes and other accounts payable.
Cash flow is the backbone of every business. Having a stable cash flow helps in continuing the business activities without a hitch. Improved cash flow also assists in making budgets and plans for the future. There are not only techniques that help in increasing cash flow, but there is also software like ZapERP that aids your business in improving the cash flow.
Here are some ways to improve cash flow:
- Push for timely payment:
Take appropriate action to secure payments from your clients in a timely way. Using online software like ZapERP or others can help you raise an invoice immediately as soon as the product is delivered or when the customer avails the service. Shortening the payment period can also assist in increasing the cash flow of the business. Some business also adopts the practice of asking the clients to pay an upfront amount before starting the work in order to keep their cash inflow in place .
Cash Flow Forecasting:
You must always have a clear idea about your incoming and outgoing cash flows so that a proper cash flow forecast can be held in place which in turn would help you to increase your efficiency as well as cash inflows .
Increase your payment window:
Increasing the timeframe on the vendor payments is a good way to improve cash flow. Stretching the time frame from 30 days to 45 or 60 days gives enough time to use the money for any other activities of the business. Most vendors do not accept this arrangement, but having a history of on-time payments can build up trust and stretch the payment timeframe and less delay in cash flow .
Most often, the reduction in cash flow happens when there are regular outflows like utility payments, bill payments, EMI’s for business equipment, vehicles and others. This can be reduced by leasing the materials and vehicles instead of buying them. It is also prudential to check for best deals for insurance, phone, internet, and other services. Getting a good rate for these services can help in decreasing the pressure on the cash flow. Having an environmentally friendly office that can reduce electricity bills is also an option.
Set up rewards:
Introducing a payment incentive can help in getting timely payments from the customers. Keeping the payment terms crisp and clear can also avoid any confusion for the client. You can also offer special discounts for the customers who pay early or charge a small fee as a late fee when the client is late on a payment. This fee will act as a deterrent and client will pay on time from the next time.
Nowadays much online software comes with the features invoicing, accounting, CRM, inventory management and other functions of the business. ZapERP has all these features, and you can sign up for free to use them and manage your cash flow.
Having too much or unwanted stock can lock your cash flow or result in unwanted spending whereas less inventory can break the business cycle and in customer relationships. So, a regular review of stock can let you know the benefits and costs of holding the materials.
Put your cash to work:
This action will improve the liquidity position of the business. Opening a high-interest savings account can help in earning extra income on your bank balance and the advantage of this method, you can withdraw the money anytime.
The line of credit:
The line of credit should be your backup plan in case of emergencies. The credit would help to adjust the lapses in the cash flow and bring stability to the business. However, the downside of this option is that the credit has to be repaid with interest.
Healthy cash flow is a result when the business operations run without a hitch. Use of these techniques and technology like well-rounded software that covers your entire business operations can aid in achieving the end-goal of business that is “Profits.”
Always remember, never confuse your profits with cash flow management in your business – when reserving profits make sure you have the money from the bank. This might seem obvious, but many company owners do not make the distinction to their detriment. As an example, your company may find a large order, but you have to sink cash to fulfill it. Sinking in cash is never a great deal instead making appropriate use of your account receivables can be better choice . In case the customer pays 90 to 120 days to you later, your money flow can turn negative .