Most people are familiar with the expression about how the money is spent as soon as your earn it. But it is a real sign of trouble for any entrepreneur who is spending more money on expenses than the company is bringing in. Maintaining positive cash flow is one of the most important things about running a small business, both in the early days and beyond, says Shaun Coard, senior vice president and business banking manager for Wells Fargo, Houston.
“You want to look at what is affecting your cash outflow and how you can improve you cash inflow.â€
Coard, who has over 18 years of business banking experience under her belt, manages a team of bankers who work with owner-managed companies to offer financial solutions for their businesses. These products and services range from deposit accounts to treasury management to the financing of equipment and commercial real estate.
Coard shares some ways business owners can maximize their company’s cash flow:
1. Manage your overall expenses and cash outlay. Scrutinize your expenses to see if there is any fat that you can trim. This would be anything that may not be a necessity to run the business. Or better deals on routine expenses like office telecommunications, internet and wireless bills. By lowering overall expenses you are keeping more working capital in the company.
2. Speed up your collections. Encourage faster payments from customers and vendors. What is your invoicing process? Do you invoice immediately upon delivery or completion? Infrequent invoices mean infrequent payments. Another way to speed collections is to offer incentives for early payments, like discounts ranging from 2% to 5% for net terms of 14 to 30 days. Clients will take advantage of discounts, especially on larger orders, rendering immediate payment.
3. Commit to collecting receivables when they are due. Don’t let payments go unattended to. If your net terms are 30 days and you haven’t received payment on that 30th day then someone should be making a phone call inquiring when that payment will be made. Your small business may be run by just you. If you don’t have the time then you need to hire help or contract out to a billing company. Don’t be leery about nagging someone who rightfully owes you money.