1. Accounts ReceivablesThis is money that others owe you. You want to receive this cash as quickly as possible. That means billing in a timely manner with reasonable, but tight payment terms.
Consider offering discounts for prompt or accelerated payment and alternative payment options, such as PayPal, credit cards, Venmo, etc.
When bills are not paid on time, be sure to send a friendly reminder.
2. Accounts Payables
This is money that you owe others. This money you want to keep as long as possible, but within the agreed upon terms.
Schedule automatic payments for utilities, credit cards and other recurring bills on the due date. Take advantage of prompt payment discounts where possible.
Use volume purchase discounts only when you have the volume to support the discount. If you can buy 10,000 widgets at a 10% discount, that's great if you have a use for all the widgets in the foreseeable future. If you really have a need for only 1,000 of those widgets, then buy them at the full price and avoid putting 9,000 unused widgets on the shelf.
3. Cash Reserves
Try to build up several months of cash reserves during positive cash flow cycles to use during the inevitable downturns.
4. Credit Cards and Short-Term Debt
Do not carry revolving credit card debt. With interest rates of 18% or more, credit card debt is hard to pay off.
If you have monthly deficits, then consider getting a line of credit (LOC) from a bank to pay your monthly credit bill. Bank credit lines generally run about 6% - 8%, much more reasonable than credit cards. But, be sure to pay down the line as quickly as possible so it is available the next time you need it.
Not surprisingly, the best time to get a line of credit is when you don't need one.
5. Asset salesIf you have non-operating assets or excess inventory taking up space, now is a good time to get rid of it. Selling these assets can provide a one-time infusion of cash and boost cash balances. 6. Prepare (and manage to) a budget As I discussed in last month's newsletter, good financial management includes preparing an annual budget.
But to be effective, you must also track progress. A monthly review will alert you to variances from the budget and identify negative trends. This will help you prepare for cash crunches before they actually occur.
If you need assistance managing, tracking or projecting your cash flow, give us a call, we would be happy to help.
