Many a successful business has faltered or even failed because of a lack of cash flow. While debtors are technically business assets and it’s nice to have a big number of businesses on your books – no money in the bank means no money to pay the bills.
Considering the importance of having the right systems in place to ensure your cash flow is strong and continuous.
Here are some ways in which you can ensure improved cash flow:
- Work on a worst case scenario
The odds are that one of your debtors will default or pay late at some point. Work out what this would mean for your business and have a back-up plan in place to cover you in terms of cash flow.
- Have emergency credit facilities in place
Set up a line of credit at your bank in case of an emergency – this will help you to cover expenses over the short term and will cost less than the rates your suppliers will charge.
- Perform a proper forecast
Being organised and having the proper planning in place means that you should carry out a thorough forecast on current and future cash flow. Once you have a better idea of the bigger picture, you can prepare for potential shortfalls.
- Be realistic about reasons for cash flow problems
Poor cash flow might not necessarily be about your debtors not paying on time. Be realistic and prepared to pinpoint the real reasons as to why your cash is drying up – it might be an underperforming sales team, poor production management, a substandard or unpopular product or service, or unnecessary expenditure.
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- Have a protection plan in place
There are various policies available whereby you can insure your business against threats. Opt for a credit protection plan that suits your business needs and set-up, and make sure the financial advisor understands your challenges and needs.
- Check potential clients’ creditworthiness
Just as you would not do business with just any supplier out there and did meticulous research about their trustworthiness, so you should also protect yourself and make sure that potential clients have good credit records.
- Keep up your end of the deal
Make sure that you maintain standards – your service delivery should be of high standard and products or services should be delivered on time. If you keep up your end of the deal, your customers have less of a foot to stand on when it comes to paying late.
- Negotiate hard terms
Try to set up your business agreement in such terms that you do not have back-to-back payments where you get paid only once your customer gets paid, or have your customers pay you over 30, 60 or 90 days. While you need to be realistic and keep their business models and cash flow in mind, negotiate terms where you do not wait such a long time before you get paid.
Ensuring constant and consistent cash flow is key to running your business. For help with this key business function as well as others key functions such as financials, project management and sales and marketing, Resolve Immix can tailor-make the best MS Dynamics GP business solution to suit your needs.
Look out for Part 2 of this article, where we will provide you with eight more tips on how to improve your cash flow.