Though sales are important for any business, cash flow is even more important. Cash inflow into the company on a regular basis proves to be really important for paying salaries, buying materials, as well as literally keeping doors open and lights on. Companies are often forced for slowing down their growth just because there isn’t enough cash inflow for supporting the outflows. Here is what can be done for improving cash flow of your business.
Reduce stock level
You can reduce working capital amount that is needed for funding your trading cycle. It can help in creating free cash. This can be done by reducing stock levels through placing orders regularly and keeping less stock in hand.
Payment terms should be laid out clearly
When businesses are not upfront about the payment terms they have, they are not doing any favors to themselves. Winning customers by coming up with vague payment terms can be a cause disaster. Cash flow proves to be of paramount importance for your business so your customers should be well aware of when and how they will be expected to make payments and what will happen if they fail to do.
Retire or sells obsolete and excess inventory or equipment
Obsolete, non-working and idle equipment eats up so much of space and also ties up considerable amount of your capital and doesn’t give enough productivity. If you own some equipment for longer time period its book value will be equal to or less than its salvage value and a sale can lead to taxable gain. You can report this gain on the tax filings. However, if you’ll sell below book value then tax loss will be incurred which you can use for offsetting company’s other profits.
Offer discounts on quick payment
Discount programs can be developed for encouraging quick payments which can result in collecting receivables in the quickest possible manner. On normal terms, 30-days period is allowed after receiving invoice and 2% discount is offered if payment is made inside first ten days. No, less or more discounts can be offered depending on your needs as well as previous paying habits of your customers.
Charge interest penalties to late payers
When you charge interest to late payers, everyone will be looking to avoid that by paying in time and will rather try to make quick payments to get discounts. So, both these strategies are somewhat interlinked.