No matter the type of excellent purchase offers you might offer your customers there will always be hiccups when it comes to payment, a thing that will directly affect your business’s cash flow. So, to deal with the problem of cash flow, all you need to do is be keen on the cash that is coming and going out, you also have to be in the know of the unpaid invoices and your existing stock among other important things.
Managing and improving cash flow while also servicing the existing credit is not exactly the easiest thing to do, but we are going to show you how to manage cash flow under credit.
- As you run your business there are instances where you as the business owner can detect potential cash flow gaps, the latter is the time in between paying out for something and not getting your money back. A perfect example would go like this, purchasing stock from a supplier and paying the full amount only to come and sell it later and fail to get paid for at least 30 days.
If the above is the case then you can proceed to negotiate new terms with your suppliers or chase the overdue invoices. Alternatively, you can get down to business and try to understand the performance of your business through the preparation of cash flow statements; you should, therefore, be able to get a statement on the operating activities, the financing activities, and the investing activities.
- Plan earlier– there is no harm in planning ahead in fact it will work to your advantage because you will not have worries about what will happen tomorrow. Earlier planning allows you to make investments while factoring in the pre-existing commitments; entrepreneurs are, therefore, able to effectively allocate their financial resources. Additionally, planning ahead gives you time to get products from suppliers at a fair price.
- Proper cash flow management minimizes dependence on creditors and bankers, what’s more, is that you get to save the interest charges through paying down your debt. Besides proper cash flow management can bring to your attention the available surpluses with which you can invest and consequently earn interest on them.
Debt collection and credit management
Lenders will go after your credit score before giving out cash, but now that you also have to resell the products, how do you ensure that your clients will pay up on time. There are a few measures that you can take to stay safe, check below.
- You could review the financial standing of the existing clients,more so those who keep increasing their orders. If you have all of a sudden attracted new customers, make sure to do a background check of their finances before you sign out the first order, however, if they are paying cash that will be a good start.
- Ensure to make your credit terms clear on the first encounter so that your potential clients can gauge whether they are comfortable with them or they will shop elsewhere.
- Also, check why your new client left their previous retailer, could it be because they have been unable to clear their debt, or was there some irreconcilable differences that could also be a threat to your business in the near future.
- Debt collection is the hardest thing you will ever have to do in business and since you are not the only retailer if you are not getting paid then someone else is and that is bad business for you. If you are, therefore, unable to collect the overdue debt, through the binding agreements, get the debt collection agency involved and let them do the hard work for you.
- And as a rule of thumb don’t engage the telephone and online communications so much, meeting in person and having a verbal exchange is a sure way of detecting pending problems and with which you can know the precautions to take so that your business doesn’t succumb.
When talking about cash flow, debt management is part of the equation, and truth be told the best cash flow management strategy will always breathe new life to your business ensuring that it can stay afloat even when there is an economic crunch. Not having proper knowledge of your clients can ruin your business and as always the Net 30 application is not a one size fits all type of system, so be sure to find other favorable terms to use with your new and clients that are facing financial challenges.