Tips to keep a healthy cash flow

One of the biggest reasons for most business failures is the inability to generate a good cash flow. Maintaining a good cash flow is the key to success for most small and medium-sized businesses. A decent cash flow will enable the worry-free purchasing of raw materials for your products, acquisition of new equipment and payment of staff wages. A problematic cash flow is a situation that will further breed other problems.

Here are some tips that you can follow to help keep your cash flow on track:

Make a credit check. Always make a credit check on your customers/clients. Set realistic credit limits for your customers. Try to seek out worthy companies to trade with. These are companies that not only have a solid credit reputation but also has a track record for paying bills on time.

Set clear conditions. Formulate your terms and conditions and make sure that your customers know about it. For example, if your terms are for 30 days, make it clear to your clients. One way to disseminate your terms and conditions is to include it with your invoices, contracts, order forms, etc.

Be on top of your administration functions. Don’t forget to always check your invoices. Avoid invoices from being returned by addressing them to the proper department as well as a named individual. Also include the job details, a purchase order number, the proper amount, the business terms and the date.

Invoice ASAP. Issue your invoices immediately upon completion of a job. Follow it up with a phone call to see if the customer has received it as well as to check whether the details you have put in are all correct.

Always be observant. Always observe and be diligent about what is happening around your company. Do you notice that your customers are behaving strangely? Have they suddenly become hard to get hold of? Have they begun issuing post-dated cheques to you? These and other inconsistent behaviour can be a sign that something is happening with your client. It is up to you to decide on what to do given the signs.

Control your credit. Always have a follow-up system in place. Have statements and reminder invoices ready for sending at given intervals. Do not hesitate to call your customers if ever their payments are late.

Keep an eye on your stocks. Take control of your stock levels. Always plan ahead and don’t carry too much stock because too much also costs you money. What you can do instead is to arrange for more frequent deliveries from your suppliers in order for stocks to be kept at a minimum.

Manage your suppliers. It is possible to get a better deal if you shop around among different suppliers and negotiate longer credit terms as well as volume discounts. This will give your company more reserve cash that you can then reinvest on your business.

Keep communication lines open. Always give up to date information to your banks, suppliers and customers.

Remain solvent. Always look for alternative ways to manage your cash as well as other alternatives to find sources of funding.