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Strategies for Effective Cash Flow Management

Running a small business can be hard – especially when it comes to cash flow. Big businesses have the advantage of having enough liquidity to roll around in order to keep their operations running efficiently, something that small businesses probably do not have the luxury of enjoying. 

Customers’ extended payment terms, bad orders, limited margins, liabilities to suppliers, and daily expenses all take a toll on a small business owner’s cash flow. Thankfully, there are ways to be creative with this, and be able to keep a good amount of liquidity in order to continue operating effectively. 

Here are just some of the ways you can manage your cash flow more efficiently as a small business: 

  1. Keep your inventory levels low

If most of your assets are in the form of inventory that hasn’t been moving for a significant amount of time, consider selling it off in order to become more liquid. Hold promotions, resell to other suppliers, or offer them up for loan to another company that may be in need of a similar product. 

For future reference, it would be wiser to keep your inventory levels as low as possible – buy supplies that you will only be able to sell immediately. This will ensure that you don’t have to worry about warehousing non-moving stock; expiration dates in case your items are perishable; and selling obsolete or irrelevant items, effectively saving money for you as well. Be prudent in stocking up – making sure that you have enough to serve consumer demand, but also avoid having to buy too much inventory that you will be stuck with.

  1. Let your customers pay on an installment basis

There may be customers that insist on terms that extend anywhere from 30-90 days. This may understandably cause a lot of inefficiency for your cash flow management. What you can do is request your customers to pay you in installments. You can have them give staggered payments for every portion of your delivery or for a period of time that has lapsed; say for example every seven days. This will help you have more cash on hand immediately while still being able to strike a compromise with your clients, and accede their demands. 

  1. Consider selling your accounts receivables to funding companies

There are companies that offer freight broker factoring, payroll funding, and other similar ways of financing. What happens is that you sell your accounts receivables to these funding companies, and they can give you about 90% of the invoice amount in cash, sometimes even on the same day. When your customers eventually pay you, you get the full amount of your receivable and pay the funding company a minimal fee. This is a good avenue to take in case you typically experience delays in your payments – the funding company will answer for the lost timeliness for you. This is also a good option to take in case you are averse to risk and want to avoid debt as a way to finance your cash flow inefficiencies. 

These are some ways you can put in place in order to manage your cash flow more wisely. Take advantage of the methods that work well for your type of business.