How to improve my company’s cash flow is a question that many entrepreneurs responsibly ask themselves almost daily.
To begin with, let’s say that cash management is the ability to adequately control collections and payments. And therefore to improve our company’s cash flow to ensure that we have the necessary funds at the right time.
There is no fixed rule to follow. But we can pay attention to a series of factors, which can help us a lot.
- Cash inflows and outflows.
- Payment of debts and maturity of payments.
- Dates and conditions that have been agreed for this purpose.
But there are more things to take into account. Because running a company without a good control of the treasury derives, in all probability, in the closing of the business.
A company can sell a lot, even with a high profit margin on its products. But if it does not collect the sales, cash flow problems arise that will jeopardize the continuity of the company.
Maintaining an adequate and efficient cash management helps to keep the company in a solid financial situation that allows it to face economic complications and take advantage of growth opportunities when they arise.
How to improve my company’s cash flow
We are going to see a series of concepts on which it is necessary to be very attentive. Because the more information we have, the more control we will have over our cash flow. And we will be able to situate in time the cash inflows and outflows. Therefore, these must be well identified.
Therefore, this information and control of this, must be constant. And it must be carried out by an expert professional, either hired on staff and therefore trustworthy. Either we put ourselves in the hands of experts in the matter.
Let’s take a look at these additional tips for efficient cash management.
Use technology
Yes, it can be done, and there are those who do it this way, but forget about paper. It is also true that there are more than a few cases where Excel is used to keep track.
Seriously, use technology. Don’t waste your time. Look for the management software that best suits you. You will be able to manage your cash flow in the most efficient and time-saving way, in a program that you find intuitive and easy to use. And if you are already in the hands of an expert advisor, they have certainly made it easy for you.
Automate tasks and avoid manual data entry errors, perform bank reconciliations, generate financial reports, etc. You will have access to real-time data and accuracy in the actual cash flow. This will allow you to make more realistic predictions. Keeping in mind that these are key to your business. That is, project the state of cash flow including expected receipts and payments in order to have an adjusted and realistic vision in the medium and long term.
Optimize payment terms
Payments are always a real headache. If you want to know how to optimize them in the best way, here are some recommendations.
On the one hand, try to shorten your customers’ payment terms by offering a discount for early payment. But also keep a close eye on those who do not pay, or tend to pay late. But also try to include penalties for late payment in your terms of sale. Delinquency control is fundamental. Know what you are owed, and who owes you.
And what about your purchases. It has always been in mind to pay the later, the better. Well, we propose something very different. Pay the sooner the better. Try to get discounts for early payment. Because think that just as it happens to you with your customers, the financial health of your supplier is also in your interest. Your own business could be paralyzed.
Watch your VAT receipts and payments. VAT is not a form of financing. And you will always have to pay it when the VAT is due. The forecast regarding the tax and accounting closure of a company is key.
Optimize your reserves and provisions
Accumulating cash reserves may not be easy, but here are a few tips.
Set aside a portion of profits
For when bad weather or difficult times come, 5% of your profits should go into a reserve. However, this obligation ends when the amount of your reserve reaches 10% of the share capital.
Negotiate with banks for a line of credit
And it is better to do it when things are going well, even if you don’t need it at the time.
On the one hand, in the event that the company needs to finance its operations, it will be essential to have the data relating to cash flow to negotiate the best possible conditions.
But also, knowing that at some point you will go through exceptional situations and moments.
Do not forget to have a line of credit. Having it will help you when your customers are late and you may find yourself with a bank overdraft. Obviously it comes at a price. But it will be lower if you negotiate it before you really need it.
And then, when you need it, you can use it automatically and immediately.
Increase sales and reduce expenses
We will talk about increasing sales in a future article, but we can anticipate something.
Be innovative. Differentiate yourself from the competition as much as you can. And above all, listen to your customers, they will tell you the key to sell more. With the first thing you will win customers, and with the second you will make them loyal. Be careful with prices as they will always be an important factor. That is why we must know what our competitors do, and how our products will be bought with theirs.
You have to make yourself known, this is valid for every activity in life. And there are many ways to do it nowadays. The well-known media, fairs and exhibitions, TV, radio, press, etc. But we also have social networks, which, if well managed, can give us the same results or even more than traditional methods, depending on our business. What’s more, they can help us to focus on the customers who have the greatest turnover potential.
Reduce expenses
It is mandatory for the health of our business to detect the areas in which there is a greater expense and reduce or eliminate it.
We must be attentive to what is in the market, and compare our suppliers with possible alternatives. We can negotiate with them, either new products or services that we need. Either more competitive prices. And we will always have the option of changing suppliers.
