Ways that companies can use to improve their cash flows
It is very important for every business owner to manage their cash flow when running their businesses effectively, every accountant will agree with this in uniform. Almost everyone likes to see what money is coming in, but if we don’t keep track of what money is going out and what is on hand, at that point, your business may be setting out toward a crash without you, in any event, knowing it. So, cash flow is one of the most important metrics to follow, especially when forecasting the future growth of your business. Here are some of the ways that companies can use to improve their cash flows:
Reduce expenditure
This is by far the most important method of improving cash flow for a business. Are you paying for a lot of unnecessary goods or services? Would you be able to cut a portion of the things out of your month-to-month financial plan? Over time, small yet unnecessary expenses add up. You will need to re-evaluate your spending habits. Take a hard look at your monthly expenses and determine where you can make cuts, even if it’s momentarily. So reduce your expenditure to improve the cash flows of the company.
Make use of Idle Cash.
When talking about idle cash, we are referring to that money that is not earning any income. There are many ways that one can use to put idle money into use, like moving idle money to an interest-bearing account that may earn 5% or 1% per annum. Another option is to invest the money in expanding the business, use the idle money to decrease the company debts and lower the interest payments, invest in new technology, or prepay some expenses.
Cutting inventory
Reducing the amount of cash tied up by buying and holding raw materials or goods for resale is another way of improving a company’s cash flow. Reducing inventory can be done by ordering less stock from suppliers and by offering discounts on stocks held to encourage customers to buy for cash.
Delaying payments to creditors or suppliers
Companies can improve their cash flow by delaying payments to their creditors or suppliers. This is a popular and widely used game in business, but it is also a dangerous game too. By delaying to make payments, a business can reduce cash outflows at the risk of damaging relationships with suppliers though.
Reduce the credit period offered to debtors
As an accountant, you improve the company cash flow by reducing the credit period offered to credit customers. This is easier said than done. By asking debtors to pay for their credit purchases quicker, a business can accelerate its average cash inflows. By actively managing your accounts receivables, you can stay on top of outstanding invoices and decrease the time it takes to get paid. You can do this is by urging clients to pay early. For instance, if your instalment terms are net 30, consider offering a slight markdown for clients paying net 10. By doing this, you can improve the company’s cash flows.
Cut back or delay expansion plans.
Many of the biggest cash outflows occur when a business is expanding, for example opening new offices or shops, adding a production line, or opening a factory. By deferring this development, money can be rationed for the time being. So cutting back or delaying expansion plans can help companies improve their cash flows.
Make use of electronic payments.
In the event that you pay electronically the monthly payslips, supplier invoices, you can stand by until the morning of the day a bill is due for payment. This buying of time improves your cash flow. The other method is to use a business credit card as some offer an elegant period as long as 21 days, which can do a lot to improve your cash flow. You might even get cashback. But keep in mind not to pile up too much debt.
Increase Pricing
Increasing your prices is a concept that scares many business owners. They are scared that it can result in reduced sales. It is good to try different things with pricing to locate the ideal number; how high are clients willing to go? You can only find out by taking a chance.
In conclusion, the above are some of the ways that companies can improve their cash flow. We hope you will find this article useful; you can visit https://fixonate.co.za for more financial management-related content.
