For almost any business to be successful the most important factor is usually availability of ready cash and maintenance of a healthy cash flow. However , during day-to-day operation of business it is often discovered to be the most difficult task and every season a big percentage of the small businesses near down for lack of ready money. Here are some tips that are really effective intended for small businesses to maintain a steady cash flow.
1)Incentivize Payment: If you are into one of those businesses where the clients tend to defer payments, try to introduce an incentive scheme with regard to immediate payments. If customers would certainly pay at the time of purchase you would not require to worry about collecting receivables and the income will also be maintained at its greatest.
2)Credit from Vendors: Try to discuss terms with your vendors and providers to get an extended credit period so that you don’t need to pay promptly for your buys. This will delay the outflow of cash from your accounts and less money will be trapped in your inventory. There are suppliers who would even offer a 60-day credit period and with such an prolonged period to pay you will hopefully have your receivables collected from your customers and use that to pay the particular vendors. This way you will not have to spend your own cash or spend hardly any yet maintain proper supply of your own raw materials.
3)Account Receivable Factoring: Invoice discounting of accounts receivables is a very well-known and affective way to maintain a proper cash flow. Businesses that have long gestation period before the receivables could be converted to cash can always factor their receivables to get ready cash as per their own requirements. It is particularly easy to factor your invoices if you are dealing with huge companies or government agencies because the factors are more willing to take danger with invoices due from large corporations than with small businesses.
4)Ask for Advance: If you are in a business where you provide custom made goods for your customers as per their orders you can always ask them for an advance at the time of beginning the project. This would reduce the risk of nonpayment as a part of the transaction is already realized.
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Also, a healthy cash flow can be maintained very easily if you can discuss a term of periodic transaction with the customer, so that the customer pays you in parts as you progress with the project.
5)Savings Fund: Most businesses go through seasonal changes in sales volume, sometimes its great and sometimes it is slow. It is a very good practice to keep away a certain proportion of the total revenue in the cost savings fund that helps to operate and run the business smoothly during hard times.
Many of these tips might not be applicable for your business, however , most of them are and with some effort and strict control on your business practices for few months you can get this stuff incorporated into your business policy. Once you have done that, you have won half the battle, because these principles are certain to increase and enhance your cash flow therefore helping your business to grow. So if you are still concerned about availability of cash, start working nowadays and it wont be long whenever your business will have a healthy cash flow.