Without cash flow, most small businesses simply cannot operate, because they wouldn’t be able to buy inventory, pay employees, and cover all the day-to-expenses of conducting business. When incoming revenues are unsteady and less than expected, it can create serious stress on cash flow, and on the business owner. Here are some helpful tips on how to reduce some of that cash flow strain, so as an owner you can retain your sanity.
Require deposits on large orders
If you’re in the customizing business, it’s a good idea to require a 50% deposit on custom orders and on any large orders as well, because there may not be any other market for products which are relatively unique or extremely large. Protect yourself with a significant deposit.
Sell off obsolete machinery and inventory
This is a great way to increase cash flow, and you won’t be losing anything by getting rid of equipment you don’t need, or inventory that has no value to anyone else.
Offer discounts for fast payments
Speeding up your receivables is an excellent way of increasing cash flow, but you need to persuade customers to pay faster in order to accomplish that. Offering discounts can be a very enticing way of encouraging faster payments.
Penalize late payments
For those customers who routinely go past due on payments, you should apply interest penalties. In effect, they are using your money, so you should be charging them interest for the privilege.
Start a Layaway program
These were popular in the past, and are now coming back into vogue as a means of encouraging greater cash flow. As a seller, you receive cash via installment payments for a product, but you don’t actually incur the cost of that product until it has been fully paid off and delivered to the buyer.
Establish a factoring relationship
In factoring, you might sell off a portion of your accounts receivable, or even all of them, in exchange for immediate funding that you can infuse into cash flow. You can do this during any month in which you experience cash flow problems, because it’s not a loan.