Maintaining positive cash flow in your firm

News: November 2012

Maintaining positive cash flow in your firm

In today’s economy, difficulties with cash flow are quite frequent as customers take longer to pay their bills and banks tighten credit facilities. As a result, many business owners find themselves in a reactive cycle when it comes to matters of cash flow. Each month, managers strive to keep their cash flow profitable while costs such as payroll, material purchases and other overheads are deducted. Sometimes this goal is extremely difficult to achieve, causing stress levels to rise. Here are several tips for maintaining a positive cash flow in your business:

Managing Costs

In protecting your bottom line, you not only need to focus on increasing your income, you also need to reduce your expenses. The key to achieving a positive cash flow is to understand your costs and review these carefully on a monthly basis.

Create a sales forecast

Though it may prove difficult to begin with, running sales forecasting in your business will allow you to develop a good understanding of how sales will stack up month to month. Make sure to forecast by month, category and what revenue you anticipate based on your firm’s sales history.

Manage Debtors Actively

Make a detailed spreadsheet of “aging” debtors to identify the clients who owe money and the length of time they have been a debtor. Don’t hesitate to follow up on overdue accounts thereafter, beginning with the largest amounts due. Consider asking if there is anything you can do to help the client pay – for example, allow them to settle their bill in instalments.

Reward Early Payers

You can reward customers who pay early. Consider offering a discount of 5% or 10% to customers that pay in a short period of time, designated by you, or to a customer who pays cash. It can also be good practice to introduce new initiatives, such as asking customers to pay a percentage up front (or ideally, pay 100% of the bill up front).

Encourage Repeat Business

Encourage customers to come back to you again and again. Consider offering loyalty programs, special offers and so forth.