Small businesses need a healthy flow of cash in order to operate effectively and maximize their profitability. However, for many small businesses, maintaining a reliable cash flow can be a challenge. Below are five ways your small business can manage and/or increase its cash flow.
- Offer incentives for faster payments.
One of your business' primary sources of cash flow is payments from customers for products or services. When customers don't pay on time, your business loses resources it needs to operate. One way to ensure that customers pay you quickly is to offer a reward to those who remit payment faster. For example, you may offer a discount on the cost of products and services or a coupon toward a future purchase.
To further discourage customers from taking too long to pay, you can also consider imposing a penalty on those customers who fail to pay before their due date.
- Collect old debts.
Many businesses have aging accounts receivable that have a significant impact on their cash flow. Although collecting old debts can be a challenge, successful collection improves your business' ability to operate. If you don't have the resources to engage in collection activities on your own, consider contracting with a collection agency to recover as much of these debts as you can.
- Deposit cash in accounts that earn interest.
When you have cash on hand, you should do everything you can to maximize its value to your business. Instead of simply holding onto your cash or placing it in a basic bank account, consider placing your cash into an account that earns significant interest. Keep in mind that those accounts earning the most interest often limit the number of withdrawals you can make. For the best results, keep the bulk of your cash in a high-interest account, such as a money market account, and put the cash you need for operations into an interest-earning checking account.
- Replace aging equipment.
When you have equipment that is inefficient or even obsolete, your efficiency suffers. Not only does this equipment take up space and slow down operations, but it may also require expensive maintenance or repairs to remain operational. Replace your aging equipment by either purchasing or leasing newer models in order to improve cash flow.
- Evaluate your pricing structures on a regular basis.
When your prices are too high, customers are less likely to make a purchase. On the other hand, when prices are too low, you aren't earning as much of a profit as you could. Evaluate your pricing structures on a regular basis to make sure you are getting the most possible benefit out of every sale.
Improving cash flow will help your business to be as efficient and profitable as possible.
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