Financing is the most important part of any business and smart entrepreneurs know that well-managed cash flows can prevent unnecessary costs and charges. While most business owners know this, many have no idea on how to manage their cash flows. If you one of them, read below for the five steps for better cash flow management:
1. Never expect a quick payment
Have you ever had an experience when a customer, especially on your B2B channel, does not pay you on time? Well, it may not necessarily be because they are unable to make the repayment. Since they have ordered your product, it means that they are likely to have the funds to make good on their payment to you. It could be, however, that their company has guidelines on extending payment terms. So, never expect a quick payment on your sales. Instead, determine if you have enough working capital to keep your business running well in the event of payment delays. In simple words – hope for the best, but prepare for the worst.
2. Read the details of your agreement
It is rare to have a completely accurate invoicing process. However, understanding your customers’ payment processes or at least using the right purchase order numbers on every piece of communication can help you to get paid on-time. Carefully study the details of your payment agreement. Make sure to prepare everything in order so that your customers have no excuses to delay payment.
3. Forecast your cashflow
Doing business without forecasting your cash flows is like driving a car in the rain without windscreen wipers: you can drive but you can’t see where are you going. Account for all expected incomes and expenses in the future. Being aware of every completed transaction and updating your records accordingly can also help in managing your cash flow.
4. Find the root of your cash flow problems
Analyse the root causes of your cash flow problem. Late payment is the most common problem in bad financial management. You should also consider potential problems such as inaccurate invoicing, inconsistent pricing, lack of customer contact, or misunderstanding your customer’s payment cycles.
5. Make use of technology
Ease your financing by using technology. Several software programs are available to help you manage your cash flows. This includes reminder notifications to help you ensure timely payment from your customers. Some software programs even help you to create consistent and professional invoices.
By having well-managed cash flows, you will be able to determine if you need financing support. Even beginners can improve cash flow management by simply incorporating these steps into their business practice. So, start working towards an optimised cash flow position today!