Help Clients Create a Positive Cash Flow


CHECKLIST
A cash-flow gap can make it difficult for a business to meet its financial obligations or make the most of emerging opportunities. To achieve a positive cash flow, a company must have a sound strategy in place. Here are some tips you can offer your clients to boost cash reserves, delay outflows and help their businesses grow.
Institute sound credit practices. Check credit information on new and existing customers thoroughly before offering any credit. For new customers obtain at least three trade references. Also, consider using a commercial credit reporting service, such as D&B, to verify a borrower’s creditworthiness. Never grant credit until you’re comfortable with a customer’s ability to pay, and request a deposit—which would vary from industry to industry—from a new customer, particularly if an order is large or requires you to purchase parts or supplies before completing the work. This not only helps cash flow, but also can cement the transaction.

Bill promptly. Mail invoices the day you complete the work or the product ships. If a job takes a long time to complete, notify the customer in advance that you intend to bill in stages.

Accelerate accounts receivable. S ome customers will pay sooner if you provide an incentive. Consider offering a discount to fast payers. This could attract new customers who look at cash discounts as a form of price reduction. Depositing checks promptly also would help your business’s cash flow.

Don’t feel guilty about asking to be paid on overdue accounts. Aggressively pursue payment of overdue invoices. If an invoice reaches 45 days beyond your agreed-on payment terms, engage the services of a collection agency.

Pay bills on time but not before they are due. When paying bills, take as much time as the creditor allows without incurring late fees or interest charges. An exception to this rule may apply when suppliers offer a discount for early payment.

Monitor inventory levels. A company’s profitability depends on the successful and timely sale of its products and services. Maintaining inventory levels at less than what is needed to support demand may result in lost sales and delays for customers. On the other hand, excess inventory places a burden on cash resources.

Compare inventory turnover with industry norms, and rely on historical sales data and forecasts to set inventory levels. Stock sitting on shelves for long periods of time ties up money that could be used for other cash outflows. Sell off outdated, slow-moving merchandise. Donate what can’t be sold.

Manage suppliers. The easiest way to slow down a business’s cash outflow is to negotiate with suppliers for more favorable terms. While most suppliers want payment in 30 days, some may be willing to extend terms for a regular customer with a good payment history. Longer payment terms will benefit you by keeping your money in your business longer. Developing multiple sources of supplies keeps vendors on their toes. Finally, do not buy more than you need or more than you expect to sell, regardless of how favorable the sale or credit terms.

Consider leasing equipment instead of buying. I n the long run leasing equipment generally costs more than buying, but the cash-flow benefits may justify the increased costs. Expensive equipment purchases can tie up cash that you could use for day-to-day operations.

Communicate and manage cash-flow strategies. Be sure to inform staff members how they can contribute to improving cash flow and monitor their efforts. If cash is tight, consult with your CPA for more specific strategies on improving the company’s cash flow.

Source: Adapted from “Put Your Business on the Right Track With Cash-Flow Strategies,” Texas Society of CPAs, Dallas, www.tscpa.org .

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