How small businesses can manage their cash flow in tough economic times

beggers February 11, 2014 0
How small businesses can manage their cash flow in tough economic times

Just like a homeowner, a business should manage its finances. When a business tracks its cash flow, directors and managers will know whether they are spending beyond their means. This is very important during a recession because spare capital might be less than in healthier economic times. Soon after you have set up a company or even when it has existed for a while, there are certain steps which can be followed.

Ask clients to pay invoices quicker

Many companies might wait weeks to be paid for an invoice once it has been submitted to clients. In fact, a month might pass by before a company is paid in full. If a company is reliant on being paid for an invoice in order to pay employees, there are particular steps which could be implemented that encourage clients to pay invoices faster.

–    Set a maximum payment time. For example, no more than three weeks should pass before a company isn’t paid for invoices. If a client does not pay an invoice by this date, you could contact them by telephone to find out why payment hasn’t arrived yet.

–    Encourage clients to pay their invoice faster. Discounts could be offered to those who pay their invoices after only a couple of days. Therefore, it is in their best interests to quickly send payment because their bill won’t be as high.

–    Although the vast majority of payments are made via credit or debit card, some customers might prefer to pay by cheque. Taking longer to arrive via post, it also takes five days for a cheque to clear. When customers know that they cannot pay by cheque and only with a credit or debit card, payment can be received very quickly and you won’t have to wait several days.

Pay bills on time but not early

It is very important that a business pays its bills. Therefore, its credit rating won’t be affected. However, if a business decides to pay bills several days before they are actually due, capital is unnecessarily taken out of a business’s account. All bills could be paid on a particular day and not at sporadic moments throughout a typical month. Consequently, a business will know exactly how much money should be in its account in order to pay bills.

Rewrite a budget

A budget might have been created several months ago when you had a greater number of clients. However, when a business reports lower profit margins, its current budget is therefore no longer sustainable. For example, a business might be spending significant sums on services which it no longer requires. When a budget is closely examined, cost-saving measures can be identified. A new budget could then be written which suits your current profit margins.

Get rid of credit cards which charge a high rate of interest

It is very important that a business has a credit card. Not only can it be used to pay for necessary purchases but it also gives a business a credit rating. However, if a credit card bill is not paid on time, interest will be applied. If a credit card has a very high interest rate such as 29%, a credit card bill will be substantial. Not every credit card charges a large interest rate because a lower rate can be applied instead. If a business currently has a credit card which charges a high interest rate, it should be cancelled and replaced with a credit card that has a lower interest rate instead.

When a business manages its finances more effectively, it can survive tough financial times.

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