Increasing Positive Cash Flow and Inventory Management Software
Managing cash flow in a small business is crucial, especially if you want to get your feet off the ground. But you can’t simply worry about selling and revenues. You know you also need to tightly manage cost. Even then, you can easily fall short if customers don’t pay in a timely manner, but you pay your suppliers promptly. Then there’s all that money tied up in work in progress or inventory on hand, and you may not realize the full cost of carrying inventory. Did you know that you could make a profit and still not be able to pay the bills? From accounts receivable to inventory management software, here are some tips to manage cash flow.
Cash flow can be managed by calculating your company’s cash conversion cycle. In layman’s terms, the cash conversion cycle is how long it takes for you to convert the resources you spend on inventory, sales efforts, and production into cash. Typically, a company gets inventory on credit, which becomes their accounts payable. Customers then buy their products on credit, which becomes their accounts receivable. The cash conversion cycle ends when the company has collected actual cash from customers and when the company has paid for inventory, property, and equipment. Figure out how much time, in days, your company’s cash conversion cycle takes. Once you figure this out, you can start strategizing ways to speed up the cycle and see cash flow sooner.
Keeping your accounts receivable policies in check is one of the most important ways for you to manage your cash flow. You should make your accounts receivable policies strict to make sure that customers pay you on time. Try not to send out merchandise before you’ve received payment. Always send out invoices to customers as soon as possible. If customers want to pay with credit for considerably expensive goods and services, you can do a credit history background check on them to ensure that they will be able to pay you regularly on time. Don’t be afraid to charge a late fee to customers who don’t pay on time. You can also send them notifications by email, phone, or snail mail to remind them of what they owe you. Once you have some long-term customers, you may want to look into creating an accounts receivable aging report. This will allow you to monitor the payment patterns of your regular customers, and it will allow you to know which ones may need a nudge every once in a while to be reminded to pay. Read more…