Cash is the lifeblood of any organization. Without sufficient cash in the account, an organization will cease to exist. That's why it's critical that you take measures to improve your business's cash flow position.
In this blog post, you will learn about five cash flow management tactics to boost your company's cash flow and avert a liquidity crunch.
1. Shorten Accounts Receivable Cycle
Shortening the accounts receivable cycle is effective in increasing the cash flow. You should encourage your credit customers to pay back the amount due at their earliest. This will result in improved cash flow position and reduced risk of a deficit.
Consider hiring a professional accounts receivable collection firm. Firms that specialize in the collection of accounts receivable use effective measures that can help you recover your money faster. Outsourcing the accounts receivable collection task will allow you to save time, money, and costs, resulting in an improved cash flow position.
2. Lease to Boost Cash Flow
Small businesses are generally cash-strapped, especially during the startup stage. To ensure that your company has enough cash to meet day-to-day expenses, you should consider leasing instead of buying.
While leasing will be more expensive in the long run as compared to buying, it will help you avoid a cash flow crisis. By leasing, your capital won't be tied to assets. As a result, you can focus on expanding and growing your business.
3. Request an Initial Deposit
Offering credit to customers will indeed boost sales, but there is also a risk of loss in case of bad debts. To minimize cash flow constraints due to bad debts, consider having your credit customers pay an initial balance as a security deposit. You should request at least 10 percent for large orders and 50 percent for small orders. This will minimize the losses in the worst-case scenario that customers will default on their payments.
4. Discover New Income Source
Brainstorm different ways to expand the income source. This will also improve the cash flow position of your company. There are many ways you can add to the income stream. Consider selling additional products that complement your existing product offering. You can also create packages by bundling complementary items together. Also, you can implement a referral program to expand your business income.
If you own an online business, you can gain extra income through affiliate marketing. This involves partnering with companies that offer complementary products and promote items through your online portal.
5. Layaway Sales Program
You can try layaway sales program to boost your profitability. The tactic was popular among sellers before the widespread use of credit cards. Under this program, customers are allowed to pay cash for future delivery of a product at discounted prices.
The purchaser benefits regarding reduced prices, while the seller gets the money sooner, which results in improved cash flow position.
While the pre-ordering of products is relatively common among companies that offer digital products such as video games, the program can also benefit manufacturing companies. Just make sure to tell your accountant about the layaway sales program since it requires special accounting treatment.
The tips mentioned above will help you improve your cash flow position. You can contact Credit Management Group if you want to outsource your company's accounts receivable collection. We can help you accelerate the customer collection process so that you can recover your money faster and prevent your cash reserves from depleting.