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What are the Best Tips to Improve Cash Flow?

Article Details
  • Written By: Felicia Dye
  • Edited By: Melissa Wiley
  • Last Modified Date: 05 September 2017
  • Copyright Protected:
    2003-2017
    Conjecture Corporation
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To improve cash flow, a business should begin by conducting a forecast. Once this is done, it may be a good idea to start implementing changes such as reducing the prevalence of credit and expanding payment options. Other methods to improve cash flow include developing a habit of promptly invoicing clients and providing incentives for timely payments.

Any business that is trying to improve cash flow should perform a forecast. It can be very difficult to make positive changes when there is no assessment of the situation. A forecast will help provide insight on how much cash is currently being received and when that happens. It will also provide a view of how much cash is then used and what it is used for. A forecast can prove to be a valuable tool because it can provide a basis for making decisions that can positively affect a business's financial situation.

Cash flow problems are created in large part by the prevalence of credit. It is therefore logical that one of the best ways to improve cash flow is by requiring monetary payments. It is important for businesses to realize how risky credit really is. This is especially true when it used to acquire goods and services that are not considered essential, because people are often irresponsible about settling such debts in financially stressful conditions. Even when efforts are made by clients to settle debts, it is often done in a manner that makes cash flow inconsistent, such as making late or partial payments.

Just as it can be beneficial to limit credit, it can also be beneficial to expand the accepted methods of payment. There are numerous ways that people can exchange funds, yet some businesses make paying for goods and services much more inconvenient than it needs to be. Businesses that accept cash, checks, and credit cards are likely to have fewer cash flow problems than those that only accept one form of payment. Also, businesses need to consider innovative options such as electronic transfers and online or cellular payment systems.

Some businesses experience cash flow problems because of their invoicing habits. For example, a business may send out invoices only once per month. If all of the invoices are sent out at the same time and each client has 30 days to pay, then it is likely that all payments will be received around about the same time. Promptly invoicing clients can go a long way toward improving cash flow problems.

Businesses that want to improve cash flow should also consider implementing incentives for all parties that can affect it. Clients, for example, can be motivated and somehow rewarded for paying their invoices on time. Sales staff can also be rewarded for increasing sales and encouraging clients to pay when transactions are conducted.

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