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5 Steps that Improve Cash Flow

Guest post by: Joseph Lizio

Article Overview: In down economies, cash is king. It is cash, not sales, that a businesses use to pay bills, meet payroll, service debt, and build growth. Here are five simple steps to improve your businesses cash flow.

5 Steps that Improve Cash Flow

Cash Flow is essentially the flow of actual money in and out of your business. It does not including accounting items like depreciation or transaction items like sales via accounts receivables. Cash flow is the stuff that is used to pay bills, meet payroll, expand businesses or take profit. The following are 5 ways that you can improve your business's cash flow:

Account Receivable Collections: If you have customers that are constantly paying late - try to find ways to improve your collection efforts. This could be sending out notices earlier. Calling accounts payables or managers directly instead of sending written notice. Or, sending reminders of payment due dates and the penalties of late payments (really outlining and stressing the penalties) more often or sooner during the waiting period. If you don't have penalties for late payment - this is a good time to put them in place - make them significant - and, highlight them on your invoices and when dealing with customers.

Offering Payment Discounts: Following the above item, offer customers discounts for paying early or paying in cash. This not only helps speed up and improve your cash flow but can also benefit your customers - keeping then loyal to you.

Vendors Discounts: Just like offering early payment discounts - take advantage of the discounts offered by your vendors or suppliers. While this might mean that cash is flowing out of your business sooner than before - it could mean that less cash is flowing out. If this is not an option for your business, you can negotiate with your supplier and vendors to extend longer payment terms. This will then give you more time to collect from your own customers before payment is due to your suppliers.

Up Sale or Cross Sale: Understand that it is more profitable and less expensive to sale to existing customers than it is to acquire new customers. Know that informing existing customers of other products and service your offer or explaining the benefits of your premium product and service not can help you improve your cash flow but can benefit your customers as they may be unaware that you have offerings that can improve their lives or business.

Using Credit Cards: The key here is using the billing cycle and grace period to delay payment. Now, this will only really work if you can and will pay off your balances at the end of each cycle. Let's say that your billing cycle runs from the 15th of each month. Thus, your credit card company will take all charges between the 15th of the previous month and the current month - combine those into your bill - then give you a grace period of up to 25 days to make the payment - without interest or penalty (this does not work with cash advances). Thus, if you make purchases early in your billing cycle, you could delay payment on those purchases for up to 50 or more days - essentially creating your own payment terms.

Lastly, as a bonus method of improving your business's cash flow - you can raise prices. Just be aware that you should only do so if your competitions' prices are higher than yours. You do not want to drive away your current customers especially if you are considered the low cost provider.

These are methods that can really make a significant and positive impact on your business and your profits. These are methods that can be used in any economy - good or bad.

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Article Tags: accounts receivables, cash flow, credit cards, improving business, small business



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