Ways to Improve Cash Flow
Every business will benefit from practical ways to improve cash flow. More money in the bank means more opportunities to grow your business, expand operations, hire additional employees, invest in new products and services and, ultimately, achieve your dream. It will also allow you as a business leader to work more on your business, and less in your business.
Management Teams and Cash Flow
Management teams should spend an hour or more each month to brainstorm ways to improve cash flow.
This means they should brainstorm ways to improve the 4 components of the Cash Conversion Cycle, namely the
- Sales Cycle
- Make/Production & Inventory Cycle
- Delivery Cycle
- Billing & Payment Cycle
Undoubtedly, this is a powerful exercise to do with the broader middle-management team. In fact, it will give everyone a better understanding of how cash flows through the organization. Also, how each function and/or team can contribute to ways to improve cash flow.
Practical Ways to Improve Cash Flow
These are some areas of opportunity, says Verne Harnish in his book Scaling Up:
- Stop saying “Well, this is just the way it is in our industry”.
- Have your available cash reported daily, with a short summary of why it changed in the past 24 hours. In addition, chart it against accounts receivable (AR) and accounts payable (AP) weekly. Of course, you will learn much more about your business when you see how the cash is flowing on a daily basis. Moreover, this keeps cash top-of-mind and allows you to react quickly – within days VS months – if it is heading south. Observing cash flowing in and out on a daily basis gives you, as a business leader or owner, real insight into your business’s financial model.
- If you want to be paid sooner, ask. Small firms find that large companies will pay faster or even prepay if they simply ask!
- Give value back to customers who pay on time or in advance.
- Get your invoices our sooner. Even if you have to hire one more person in accounting to do nothing but make sure invoicing is timely and follow up on payments.
- Send friendly reminders 5 days before the deadline that payments are due. Many customers are disorganised and will appreciate the reminders, leading to faster payments.
- Understand why your customers are paying late. They might be unhappy with your product or service. Or perhaps an invoice has recurring mistakes, or it is not structured to flow through the customer’s automated invoicing system.
- Understand each customer’s payment cycles, and time your billings to coincide.
- Pay many of your own expenses with a credit card so you can play the float. Get your own customers to pay by credit card, so they can pay you quickly even if their cash flow is slow.
- Help your customers improve their cash flow so they can pay you on time. For example, offer them leasing options.
- Shorten cycles for delivery of your product or service. You most probably have “work in progress” – the faster you complete projects, the faster you get paid.
- Offer a product or service so valuable that you have some leverage with your customers to get them to pay sooner.
- Increasing margins and profit, improve cash. Therefore, consider increasing sales prices.
Need help with ways to improve Cash Flow?
Does your cash flow and/or Cash Conversion Cycle need a look at, or even a make-over? Or do you need ideas and strategies to improve cash flow?
CoLAB has a unique #bestpractical cash flow tool that will give you exceptional insight into the financial performance of your business, leading to improvement in profit, cash, and business value.
Keen to chat? Set up for a free 20-minute chat with Barend Cronjé, CoLAB CEO and Master ScalingUp practitioner.
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