The cash flow or flow of funds allows forecasts, enables good financial management, decision-making and income control, in order to improve the profitability of a company. This term comes from Cash Flow and is defined as the variation of money inflows and outflows in a given period.
For example, if your accounts payable (your debts) are due before your accounts receivable (money from a sale that you haven't yet collected), you'll have cash flow problems. This, in turn, means that you won't be able to pay your bills on time, which can lead to bigger problems, such as paying payroll and dealing with solvency issues. If you want to improve cash flow in a company, consider implementing some of the following strategies.
Strategies to increase cash flow
#1 Rent (or Leasing). Do not buy
Since leasing supplies, equipment, and real estate is often more expensive than buying, doing so may seem counterintuitive to someone looking only at the income statement. But unless your business has enough capital, you're going to want to maintain cash flow for day-to-day operations.
When leasing, you pay in small portions, which helps improve cash flow. An added benefit is that lease payments are a business expense and therefore tax deductible.
#2 Offer a discount for early payment
We all love incentives. If you offer your customers a discount if they pay their bills early, you are creating a win-win situation for both. Of course, receiving the money in advance helps the treasury.
#3 Request Factoring
In the same logic of requesting an advance payment, you can resort to a factoring company.
Financial factoring or factoring is a form of financing through which a company can receive the resources of its accounts receivable in advance, which allows it to have sufficient liquidity to grow and continue operating the business.
#4 Check your Inventory
Perform inventory control. Make a list of the products you buy that don't move at the same rate as everyone else. These assets represent a large amount of money and could hurt your cash flow in a company.
Instead of buying more of what isn't selling, get rid of it. Even if it's discounted. It's hard to get rid of products, hoping that one day an increase in demand will magically happen, but that almost never happens. Be objective.
#5 Review your collection process
Establishing and organizing your collection and accounts payable process will be essential to improve your company's cash flow. If your accounting department doesn't already use software to help manage your accounts, it's a good idea to invest in one. Next, you need to communicate to your team that the most important invoices are paid first. Don't let unpaid bills go to waste.
Additionally, try to get to know your suppliers and lengthen payment terms as much as possible. Most providers will ask companies for a 30-day payment, but once a good relationship is established, they may be more willing to offer a net payment in 45 or 60 days. After all, the more time you have to pay, the more time you have to receive your accounts payable.
#6 Send your invoices quickly and easily
In this way, the collections will be faster. Make sure you understand the basics of how to prepare a good invoice and that the terms are clear. Have the due date appear in multiple places, including at the top of the bill and on the proof of payment at the bottom.
Include clear instructions on accepted payment types. If you charge late fees, be sure to include those as well.
#7 Generate returns on idle capital
You can invest the capital in savings accounts or other investment options. This will provide you with liquidity while growing your cash position. The best high-yield savings accounts offer interest rates up to 25 times the national average, which means you'll earn more for the money you've saved.
#8 Control access to bank accounts
To maintain a positive cash flow in a company, it is crucial to protect your assets. The best way to eliminate fraud and unauthorized use of your business bank accounts is to make sure the right safeguards are in place.
The most common safeguards are keeping the number of people who can access these accounts to a minimum, securing IT infrastructure, frequently updating passwords, protecting credit and debit card information and bank accounts.
#9 Outsourcing
It is not necessary to hire full-time employees for every business function. You must assess the needs of your company and identify the areas in which it may be more profitable to outsource. IT and systems management, human resources, accounting, payroll and marketing are functions that can be outsourced.
#10 Review Contracts – Renegotiate
Another tip to increase the company's cash flow is to regularly review service plans and contracts. Start by reviewing your insurance, Internet, phone, utility, software support, and building maintenance contracts bills to find savings opportunities.
Improved technologies and increased competition have lowered the prices of many services, so its worth spending time looking for a better deal.
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