Coronavirus has caused shutdowns across the world and the country that have largely impacted small businesses, and, on top of that, there have been protests around the country as well, which are also affecting businesses. All of this means that you may be dealing with cash flow issues as a small business.
Cash flow is a critical consideration for all businesses because it’s how you keep your business afloat. It is how you pay your expenses and purchase stock or materials, it’s how you pay employees, and it funds operating expenses like rent. Positive cash flow indicates things are going well in many cases and perhaps that you have the option to reinvest in your business. Negative cash flow, of course, is a red flag that indicates you may need to change course.
Even if you’re in somewhat of a lean time right now, there are strategies you can utilize to improve your cash flow.
Automate Accounts Payable
AP automation is valuable in a variety of different ways. Some of the simplest ways include helping your business be more organized, reducing human error in repetitive tasks, and freeing up you and your employees to be more strategic in other areas of business.
Here are a few more ways that automating your accounts payable can help your cash flow.
· You’ll have increased visibility to ensure that you’re paying things in-full and within terms, which can cut down on the risk of late payments. You’ll also be able to time your payments in a strategic way that’s in line with your cash flow demands.
· You can speed-up invoice processing and save money on labor costs, so you’re paying significantly less per invoice.
· When you have visibility and organization through the use of AP automation, you can start negotiating more favorable terms with your suppliers and vendors.
Lease Rather Than Buying
If you lease equipment, office space, or supplies rather than buying them, you’re going to have more cash to use as part of your daily operations. This is because, with leasing, you’re paying in small increments, which tends to be beneficial for cash flow. Plus, lease payments are a business expense so they count as write-offs on your taxes.
Make Customers Pay More at the Point-of-Service
When you’re looking at how long you have to float your cash, you may notice that you’re paying your vendors, let’s say, around fifteen days after you buy from them (just as an example). Then you bill your customers on average thirty days before their total payment is due. You can see there’s a wide discrepancy between when your cash is going out, as opposed to when it’s due to come in.
Even if you can’t accept credit card payments at the point-of-sale, you might want to think about setting payment plans or collecting down payments to help you reduce the time spent without money in your hands. You should also work on making sure you’re generally reducing how long it’s taking your business to get paid.
Your invoicing process from start-to-finish needs to be standardized, and you need to stick to it as this will give you consistent payment dates, and your customers will have a better understanding of your expectations.
Make It Easy for Customers to Pay
People want to use cards to pay for nearly everything, and that’s just a fact. If you offer card payments as an option, you will make the payment process easier for your customers and, at the same time, improve your cash flow.
To further improve the ease with which your customers can pay, you should also set up online payment and auto-debit payment options. The more convenient it is for customers to pay for your products and services, the better off you’re likely to be in terms of keeping your cash flow positive.
While making payments easy is important, having consequences for not paying on-time is also something you need to standardize in your business. For example, what’s your policy for dealing with disputes, and are there consequences that are universally enforced for late payments?
Consider Your Marketing
A major part of managing your cash flow is doing what you can with what you have, as far as improving efficiency and visibility, but there are creative elements to consider as well.
The first is this: if you can increase revenue, you can improve cash flow. To start, think about your marketing as it currently exists. Are your marketing strategies working, or do they need to be revamped? Do you make it a priority not only to market to new customers but also to focus on building loyalty among existing customers? What channels are you relying on most, and should you reconsider how much you use those channels? What about your e-commerce sales? Are there ways you can expand your e-commerce to drive revenue and also reduce overhead?
Finally, think about where you’re stashing your cash. Are you putting your money into a savings account or checking account that doesn’t earn interest? You can have your unused cash earn money for you if you put it in the right types of accounts, which can help your cash flow in the long run. Another option is to use a high-yield savings account or a money market account. With this, you do have to be cautious about limitations on taking money out of these accounts, but a lot of online account options don’t have so many of the stringent requirements of traditional bank accounts.