Are you looking for ways to improve your company’s cash flow? Then look no further. Following the 5 easy steps below can help you improve the cash flow of your business:
1.) Take advantage of trade credits on payables: If your vendors offer a discount for paying early, take advantage of it. Taking advantage of a 1 to 2% discount on a payable equates to an even larger annual effective rate of return, even more than you could earn if the money were invested. Try to negotiate discounts or early payment incentives from your vendors that do not clearly promote these incentives. Some vendors may be willing to offer you a discount in return for speeding up their receivables.
2.) Evaluate your terms and collect on invoices that are past due: If you take steps to shorten the time of your receivables, then it will boost your cash flow. You can do this by adjusting your payment terms, for example, from 45 days to 30 days. You may want to consider offering your customers a discount for paying early. Another suggestion is to send invoices immediately after delivery of goods and services, which will speed up receipt of cash. Earlier billings will hopefully equate to earlier receipts. Monitor your receivables and follow up on delinquent payments, thereby potentially lowering your bad debt allowance or write offs. The faster your receivables turn over, the more capital you will have.
3.) Use credit or payment terms to your advantage: On the contrary, take advantage of the maximum time allotted to pay your vendors and creditors. Use credit to pay vendors and make purchases. Make the most of payment terms and grace periods, whether paying creditors or vendors directly, by paying on the last possible day you can without penalties or late fees. Payment terms essentially offer you an interest-free line of credit and allow you sufficient time to collect your receivables. Some credit cards also offer cash back features so you can earn some extra cash with it.
4.) Prepare cash flow projections: You should prepare cash flow projections for the upcoming periods, whether it is yearly, quarterly, or even monthly. An accurate cash flow projection can help alert you to potential cash flow problems before they occur. Do not ever think you are too busy performing daily business actions to worry about your cash flow. Take the time to analyze your business’s cash flow to ensure that you do not get caught unexpectedly without enough cash on hand to pay for day-to-day operations.
5.) Work with your accountant: Working with an accountant can serve as an investment rather than an expense. An accountant can help review your cash flow projections and operating results, and provide valuable insight on your cash flow. An accountant can assist you in planning for and mitigating cash flow problems before they occur.
MKS&H has CPAs on staff who are well versed in cash flow management. Please do not hesitate to contact us should you have questions regarding how to improve your company’s cash flow.
Article contributed by Jessica Sipple, MKS&H Staff Accountant
About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by putting complex financial data into truly meaningful context. But deeper than dollars and data, our focus is on developing an understanding of you, your culture and your business goals. This approach enables our clients to achieve their greatest potential.
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