Is your cash flow really flowing? How do you collect debt to keep the cash flowing? You company’s access to cash and credit is important, and may become critical if anything unexpected happens. To keep your cash flow management smooth, you need to measure it, improve your accounts receivable numbers, and prepare to withstand shortages.
Measure Cash Flow
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Know who owes what when. Tracking will help identify and avoid slow-paying customers.
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Assess your company’s books, cash, and credit status often.
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Forecast and allow margin for unexpected events.
Improve Receivables
- Request deposits on credit orders.
- Check credit worthiness for new credit customers. (Consider reading this best credit policy tips whitepaper as a roadmap.)
- Adhere to a strict schedule of sending invoices early, reminders after a set period of time, and overdue notices immediately upon the debt becoming overdue. These don’t need to be unfriendly – in fact, friendly reminders can lead to more business.
- Consider discounts for customers who pay early. The longer a debt goes unpaid, the less likely it is to ever be paid.
Withstand Shortfalls
Even with the best management plan, perfectly executed, you may find yourself lacking liquid funds at a critical time. Consider these measures:
- Plan ahead. You can’t anticipate all problems, but you can anticipate that things won’t always go perfectly. Consider a backup plan like a line of credit.
- Renegotiate. Your suppliers have a stake in your company, and they may be willing to renegotiate their contract with you or give you more time on your accounts payable.
- Request early payments from clients – again, consider giving a small discount to make it worth their while.
- Collect overdue payments. The importance of debt collection on overdue payments is often underestimated. Consider outsourcing collection efforts to a reputable company to speed up recovery and allow your business time to be better spent.
- Review assets for potential sale.
- Take note of lessons you can learn and improvements you can implement in the future.
Poor cash flow management can undermine the trust placed in you and your business. Carefully managing cash flow, actively looking for opportunities to improve receivables, and surviving (and learning from) shortfalls will keep your business relationship stable and ensure your company has enough cash to meet its obligations, handle the unexpected, and grow.
