Ask any business owner, and they can tell you that cash flow is a significant consideration in their businesses. Businesses do experience cash flow shortages from time to time. Though it may seem small, it can eventually cause the downfall of a business if the problem is not handled correctly.
Cashflow problems happen when your payables (your debts) are due before your receivables (money from a sale you haven’t collected yet) come in. At times, from the outside, your business and purchases may be booming; however, this could also mean more employees and a bigger inventory. That’s money going out upfront.
Besides, high profits shown from your business account do not necessarily mean that you have enough cash on hand to pay your expenses or debt when they are due. As the problem drags on, it can and will affect the sustainability of the business.
Here we have compiled some tips on how to better manage one’s cash flow so that business owners can better sustain their business.
- Improve payment terms with supplier and customers
Firstly, you can set new payment terms with new suppliers and customers. Offering them a discount when they pay a full upfront payment will motivate them to do so. In a way, it is also an incentive for suppliers and buyers to pay early as compared to them dragging payment. Having the payment term set this way will also reduce the risk of non-payment. This will also provide your business with more cash on hand as compared to pilling invoices.
Secondly, as a business owner, you should cultivate the habit of invoicing promptly. On the same day you achieve a business deal or purchase, you should invoice the other business partner straight away. Commonly, the sooner a bill gets to a client, the sooner they’ll pay.
Thirdly, when dealing with large or custom orders, your business should always get a deposit payment of up to 50%. This will prevent you from spending a lot of cash to fulfil the custom order and then not being able to be paid for your work for up to 90 days. Without a deposit, you also risk your customer negotiating a reduced payment when you deliver.
You can also incur a financial penalty for late payment. State this condition very clear at the start of the business deal with your supplier and customer so that it will encourage them to pay timely. Besides, if they do pay late, you have the opportunity to receive more than you offered.
- Utilise electronic payment
Technology is ever-changing and more and more brands are switching to technology that allows convenience in business. This includes electronic payment. Not only does utilising electronic payment present the business in a professional light, but electronic payments are made 8 days faster than traditional methods according to data from FreshBooks. Besides, people are more likely to pay on the spot due to convenience as compared to many steps taken to achieve a task. Paving simplicity and ease of doing business will encourage suppliers and buyers to pay earlier.
- Improve your inventory
As mentioned that your business from the outside may have a lot of purchases, however, large quantities of sales may also mean more manpower and a larger inventory to fulfil the purchase orders. That’s a lot of money going out from your business at the start. Which is why business owners are encouraged to review and improve their inventory from time to time.
Firstly, you can do a forecast. Forecasting facilitates the evaluation of the current budget plan as a means to determine whether or not the company is heading in the right direction. From here you can make important business decisions in purchasing different types of products and also what products to bring into your business as well as what products to stop buying.
Pay close attention to the goods that aren’t moving at the same pace as your other goods. These goods can cost you as a business owner, a lot of money. Here’s a tip – instead of buying more of what doesn’t sell, get rid of it and sell it at a discount! Here is where you can see a lot of “clearance sale” going on, as brands throw this type of sale from time to time.
“When looking at your inventory, you want to observe the volatility of sales. Do you have too much cash tied up in products that sell only sporadically? Would that money be better off used in your “bread and butter” items that turnover more quickly? “You might end up having tons of money tied up in inventory without actually meeting your customers’ needs.”
Forecasting software such as Templates, QuickBooks, and so on offer business owners a microscopic view of the performances of their business.
- Take a business loan
Taking a business loan is the most logical solution in solving cash flow issues and there are many SME business loan options available in Singapore. Read here to find out the business loans available as well as their functionality. Business loans from banks are typically harder to obtain as compared to a business loan from other non-bank financial institutions such as FS Bolt due to the stringent application process and approval requirements.
You can get a business loan of up to SGD50k within 24 hours with FS Bolt! A product under Funding Societies, FS Bolt is your go-to mobile application created for SME business owners to easily get funding for their business. The application only takes 2 minutes and you will be able to get approval within 2 hours! Download the app here!
- Consider getting Accounts Receivable Financing
Accounts receivable financing or invoice financing is where you can use your invoices and get cash at a lower value from the amount stated on the invoice. Banks offer it and you read more about it here.
It is another way to get upfront cash payments from banks and have them chase payment from your suppliers or buyers. Businesses with a lot of invoices from time to time can consider applying for this facility.
- Get a business line of credit
Also known as LOC (line of credit), it is an arrangement between a financial institution, usually a bank, and a customer that establishes a maximum loan balance that the bank will permit the borrower to maintain. A line of credit typically has a lower interest rate and closing costs as compared to a loan of comparable size.
This is also another way to sustain cash flow within the business as the business owner can withdraw funds on the line of credit at any time, as long as he or she does not exceed the maximum set in the agreement. A business owner does not necessarily have to take up the entire amount that he or she is approved for, and they only pay back with interest of what they took.
- Let go of C and D players
Commonly, people hate to talk about retrenchment or may visualise letting go of employees in a bad light. However, payroll is one of the biggest expense for a business and hiring the wrong employee can have an adverse effect on the growth of the company in the long-run.
When a business has to cut costs, letting go of C and D players can be an option. If these employees are not contributing as much to the profitability of the company, then it is better to let them go. Keeping them would incur costs that could have been put to a better use or used to hire an A player that may generate much more revenue for your business.
An advice is to be generous in the severance as the savings over the next few months can be plentiful. Once you are ready to hire more staff, you can choose to hire A players this time and they will aid in the sustainability of your business.
- Review your financial accounts frequently
It is prudent to review your business financial accounts from time to time, or if not, quarterly to ensure that your business is on the right track. You will also be able to make better-informed decisions to ensure the stability of your cash flow.
Secondly, you can also set up a weekly cash flow report. The weekly cash flow report focuses on three main Key Performance Indicators (KPI’s). The first is your actual beginning of period cash balance, the second is your projected Accounts Receivable (AR), and third is Accounts Payable (AP) to help forecast expenses. This will help you keep track of where your financials are and if they are contributing to the success of the business.
In conclusion, cash flow issues can be a major headache in one’s business but it is manageable so long that business owners are equipped with the right knowledge and know-how.
For a quick injection of cash, download and apply for a business loan of up to SGD 50k from FS Bolt!
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