Ask business owners what is the single biggest problem they face on a daily basis and chances are that having sufficient cash to pay bills as they fall due – be it wages for staff, rent, utility bills or payment to suppliers – will be at the top of the list.
Cash flow shortfalls, or the working capital gap as it is commonly known, affect all companies, big or small, in any industry in any part of the world.
Managing working capital effectively ensures that a business is able to manage its day to day operations and also meet short term debts and future expenses. Therefore, necessary but by no means easy.
Here are some simple tips on taking control of your working capital and maintaining smooth operations:
Invoice your Customers on time
- Many businesses with strong sales still suffer from insufficient cash flow largely due to inefficient invoice management. Selling to other businesses usually involves providing trade credit terms – 7,14,30,60 days to pay. If this sounds like your business, then whenever you have completed a project or provided a service, start preparing an invoice – this should be your top priority. The sooner you send invoices, the more likely you will be paid early.
- Many companies have moved on from traditional invoicing to online invoicing; it’s easy to keep things moving even in your hectic schedule. Use cloud accounting software and automation to your advantage! Start invoicing your clients on schedule and set up automated follow-ups on non-payments.
Make it Easy to Get Paid
- It’s important to be open to various payment methods to ensure getting paid on time by your customers. Accepting credit/debit card payments, payment by cheque (yes, some people do still use them) or, best yet, cash, are all options you should be capable of accepting.
- Also, make it possible to pay you digitally so they can pay you from the comfort of their desk chair or via their smartphone.
- Remember, the easier it is to pay you, the harder it is for them to make excuses.
Incentivise Quick Paying Customers
- Now that you’ve made it easier to pay you, you should consider setting up rewards for customers who pay you quickly or on-time. One way to do this is to offer discounts or rewards programs to incentive good behaviour.
- Or, as you grow, you can extend credit to your customers (but only the best!). Make sure to consider the disadvantages, including impact on your gross margin; if it is financially viable to offer this to your customers, they’ll be willing to spend more money than usual.
Negotiate longer payment terms with your suppliers
- Slow-paying or non-paying customers often cause disastrous hurdles to growth, yet it’s still necessary to control your business cash flow. One way to do this is to work out longer payment terms with your suppliers.
- Just like you can do for your customers, your suppliers will want to do with you. If you’ve maintained a loyal business relationship, and you’ve been a dependable payer, your suppliers may well be willing to work out a deal with you. It never hurts to ask – the worst they can say is no, right?
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