10 Free Ways To Improve The Cash Flow Of Your Business
Below are 10 free ways to improve the cash flow of your business. In each case, the impact may be small but combined together these ideas could have a significant positive effect on the amount of cash that your business has to spend.
Furthermore, in some cases these ideas may earn you additional income to help finance your business:
- Take More Credit - The longer you take to pay your suppliers, the more cash you will conserve within your business. It might not be possible to take additional credit in some cases but you could review your creditors, identify and negotiate with those suppliers that you could take a little longer to pay. The effect of this can be quite dramatic, for example, if you make £10,000 of purchases during a month, extending your credit terms by all suppliers by 2 weeks would effectively release circa £5,000 of cash for your business to use.
- Pre-dunning - Chasing your outstanding sales invoices prior to the date that they fall due. By doing this, and requesting confirmation of a payment date, you may be able to accelerate the cash flow of your business as any issues will be identified in advance of your invoices falling due for payment, and your customers are more likely to pay you promptly.
- Set Cash Collection Targets - Whether you handle your credit control function yourself, via staff or through the use of a factoring company, setting a target for the amount of the cash that should be collected from outstanding invoices each month gives the credit controllers, that are involved with the task, something to aim for. This can be particularly effective if they receive some form of reward for meeting or exceeding their target. These rewards do not necessarily have to have a financial impact of your business. For example, you could offer your credit controllers time off, instead of a financial reward, for good performance against their cash collection target.
- Use Your Credit Cards - With most credit cards, providing the balance is cleared at the end of each month, you do not incur any interest or charges. By using your credit cards for purchases you can effectively receive a month's free credit which could help ease your cash flow.
- Complete a Stock Inventory - This does not necessarily relate the raw materials used within your business, although it could, but instead other items such as stationary or items of office equipment. Go through everything that is stored away in cupboards etc. and you may well identify items that you didn't even know you had. By doing this your business can potentially cut down on re-ordering items that are already held in stock, but have been lost or forgotten.
- Set Cost Saving Targets - This methodology can be applied to any aspect of the purchases that you make within your business. Simply set a target to reduce a particular aspect of your expenditure by say 10% and then look for ways to achieve that saving. For example, you may be able to save 10% on the cost of your stationary purchases by being more efficient with the items that members of staff are allowed to order. Alternatively, you may be able to save money on your telephone cost by discouraging staff from phoning mobile phones and seeking landline numbers instead.
- Shop Around For Utilities - By seeking alternative suppliers for your business utilities you may be able to save some cost, or you may wish to consider a utilities warehousing company that are able to offer you discounts if a range of utilities are taken from one provider. Once again, by reducing your outgoing costs you will improve the cash flow of your business. This can apply to purchases such as phones. We switched to Voice Over IP (VOIP - an internet based phone system) for our phones, and dramatically cut our monthly phone costs by 90%!
- Ask A Little More of Your Staff - If you have members of staff that are on a fixed salary by asking them all to do a couple of additional hours out of goodwill, without incurring any additional costs, you may be able to have an impact on areas such as credit control performance which could drastically improve the cash flow of your business.
- Introduce Any Slow Paying Customers to a Factoring Company - By introducing your slow paying customers to a factoring company, they are likely to receive a cash injection into their business, which could improve the speed with which they are able to pay your sales invoices. In addition to this, it is also possible that you could earn a commission for making the introduction - boosting your income!
- Offer Things Which Are Free - This approach can be applied to both staff situations and customers. For example, with a member of staff, rather than offering financial incentives for performance you could offer additional holiday which will not have a financial impact on your business. In a customer situation, rather than offering discounts on the price that you charge for items you could consider offering more of the service or product that you provide to encourage them to purchase larger quantities, or to pay more quickly.
If you are able to put in place just a few of the above ideas, it is likely that they will have a positive effect on the cash flow of your business, without incurring any additional costs.