Cash Flow: How to Avoid the Strain

Understanding how cash flow increases a company’s ability to stay on top of operations and eventually to increase revenue is key to taking any small or mid-size business to the next level competitively. Studies have consistently shown that top performers in every industry and level manage to receive payment faster from their customers while deferring out payment on their own accounts in ways that do not strain their relationships with their suppliers. That might seem like a dream, but it is attainable with just a little advance planning. The reason most businesses miss the opportunity is simply because they do not plan on or bargain for expansion happening as rapidly as it often does.

Establish a Cash Flow Calendar

If possible, put together a yearly calendar that tracks the due dates for consistent and roughly consistent items. This allows you to see when you have to pay out regular suppliers, utility companies, and debts. That way, you see when you need to have cash ready for payments, and it becomes easier to budget. That also allows you to plan for ways to defer out your payments to your own suppliers and contractors without putting them in a troublesome position. The key is to find instruments that extend your reach while still paying them out.

One way many companies accomplish this is by using a business credit card, which often grants a short grace period before assessing interest. Paired with a revolving credit account and the right payables practices, this could buy up to an additional eight weeks of float under the right conditions, and even just the credit card works for several weeks.

Groom Your Receivables and Reach Out to Clients

The other side of managing cash flow is finding a way to make sure your largest clients remain profitable for you to work with. While your sales department is likely to view every large account as a winner, the fact is that a combination of perks, price breaks, and late payments can easily turn a top performer into a money losing proposition, even without a change in the volume of business you are doing. Reaching out to customers about revising your relationship, or simply sending out reminder invoices after the first thirty days, is a great way to ensure that you are a priority for them the way that they are for you.

Remember, the key is to make as many customers and suppliers happy as possible by smoothing your flow, so the process will be a negotiation with a lot of individual give-and-take. Keeping that in mind will help you improve your cash flow effectively, and in ways that lead to your company’s long-term growth and success.

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