Is Cash Flow Going in the Wrong Direction?

Cash flow. It’s what keeps every business alive just like the blood flowing through your veins. The irony is that although it is extremely important, it is not managed properly by many businesses, even the successful ones. Here are reasons for common cash flow issues and how to fix them:

Problem: delays with receiving payments: Common reasons for not get paid timely include: slow invoicing/billing procedures, customers on long payment terms, not accepting electronic payments, and customers with cash flow issues.

Solutions: Do not delay with invoicing or processing payments from customers, especially as soon as a service has been rendered. When possible, shorten payment terms to get paid quicker and/or ask for payment up front. In some cases it is not possible for customers to pay quicker, and if so, then it may make sense to obtain a line of credit.

Problem: spending cash before a sale: This greatly applies to retailers that have to pay for inventory and then wait until it is sold to receive cash. It can also apply to paying for equipment, wages for employees, and various other expenses.

Solutions: For inventory-driven businesses, monitor your inventory to make sure it coincides with your sales cycle and that inventory is actually selling. Some retailers, specifically online retailers, may be able to have items shipped directly from the manufacturer or distributor once a sale is made, which lowers the amount of cash needed for inventory. Also, stretching out payment terms to vendors is helpful.

For service-based businesses, wages can be one of the largest expenses. Make sure that employees are working on a project that is planned as opposed to wasting valuable time on longer-term projects that cannot be taken to completion, thus not being able to be paid.

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