Marita Bon Article

Marita Bon Article
Picture of Marita BonMarita Bon, executive editor and co-owner of Bon's Eye Marketing, has more than 23 years of business, news and corporate writing experience. The founding editor of Wilma!, Wilmington, N.C.'s only women's magazine, she has contributed extensively to area newspapers and business journals.

A Few Simple Changes Can Stabilize Cash Flow

A Few Simple Changes Can Stabilize Cash Flow

Ask most business owners to name their biggest cause of sleepless nights, and they’ll sum it up in two words: cash flow.

Cash flow is the movement of funds in and out of a company. Positive cash flow means revenues are coming in at a pace that allows you to pay bills, meet payroll and invest in corporate growth. Negative cash flow means you are spending more than is coming in, even if – on paper – you have sufficient receivables to cover expenses. It’s simply a matter of timing.

In an ideal world, you’ve already run a cash flow projection, which estimates all expenses and revenues for a prescribed time frame. If you haven’t, then it’s a good idea to do it now.

Begin by calculating total monies you’ll have to work with over, let’s say, the next three months. To arrive at a realistic figure, add cash on hand to anticipated income from client payments, interest, debt collection and other sources, along with scheduled receipt dates.

Next, list projected expenditures and due dates, including wages and benefits, taxes, credit card payments, rent, utilities and other items. The resulting data will show where your money is coming from and going to, and likewise provide a blueprint for structuring inflow and outlay over that period.

Meanwhile, implement some additional measures right away to shift the tide from negative to positive territory.

  1. Review billing patterns. Consider invoicing customers immediately after service delivery, rather than sticking to a once-monthly schedule. For large projects, or those that will take a while to complete, request a down payment. You might want to alter payment protocols, too. For instance, if your terms currently are net 30, think about switching to net 15. Or encourage quicker turnaround by offering customers discounts for paying sooner.
  2. Tighten credit policies. If your company deals primarily in big ticket items and services, be cautious about extending credit too quickly. Always conduct credit checks with new accounts, and don’t be afraid to ask for a cash deposit upfront. When existing customers are slow to pay, promptly consult with them to arrange terms you both can live with.
  3. Know who owes what – and when.  Standard business accounting software has the capability to create aging reports, documents that track clients, invoice dates and outstanding receivables. Running this check on a monthly basis allows you to collect overdue payments in a timely manner, as well as to get a feel for your clients’ payment histories. Once you have all your facts in place, follow up with a friendly phone call or email to arrange terms.
  4. Let credit terms work for you.  Always pay bills promptly, but not before you must. When a lender offers 30-day no interest terms, for example, sending a check two weeks before the deadline is unnecessary. On the other hand, if early payment earns a discount, then go for it.
  5. Negotiate with vendors. It’s easier to manage cash flow when you’re not paying invoices the same time every month. If you have good relationships with your suppliers, try to work out staggered billing schedules. Also discuss flexible payment plans and discounts.
  6. Plan for contingencies. When cash flow is in a positive cycle, put some money aside for emergencies. If your budget is too tight right now, investigate other options, such as credit lines, factoring or loans.

Finally, remember that establishing and maintaining a healthy cash flow takes time and self-discipline. Start with a few basic changes, and watch your situation improve bit by bit.