Financial Education
Running a small business requires making sacrifices and trade-offs, even when the economy is booming and especially during difficult economic times. With consumers and businesses alike buckling down on their spending during the pandemic, focusing on efficient cash flow can help your organization keep your doors open. Try these tips for conserving cash and improving business cash flow:
1. Get paid promptly. Be sure payment schedules are met, and call customers promptly when they fall behind. Consider offering percentage discounts for early payments or setting your terms to be payment-in-full when products or services are delivered. For long-term projects, divide the fee into segments and request payment in advance of each new phase.
2. Shorten your days sales outstanding (DSO). A DSO analysis provides general information about the number of days on average that customers take to pay invoices. To figure DSO, divide total receivables by total credit sales for the period, then multiply by the number of days in the period. The lower the figure, the faster you’re getting paid. Keeping an eye on this number allows you to be proactive in collecting accounts on time.
3. Cut down on inventory. A sale is one way to quickly rid your business of inventory that is not moving — plus it frees up valuable space for other products that can sell better. Another option is to ask the distributor who sold you the product to buy it all back. You may be assessed an administrative fee to return product, but this tactic frees up capital and space.
4. Work with vendors. Always ask for longer payment terms, and favor suppliers that offer them. Negotiate terms with your vendors for 30 days or more (instead of upon delivery) so you have an opportunity to complete the work, bill your customers and receive payments prior to paying your vendor.
5. Trim facility and equipment costs. Consider downsizing your office or retail space to save on overhead costs. You might be able to renegotiate rental agreements or sublet your space. Keep costs down by conserving energy and extending the life of your equipment by maintaining and repairing computers and other essential equipment.
6. Secure a line of credit. At times, borrowing the cash you need can help your business run smoothly. Often rates on a business line of credit are less than the late fees your vendors will charge. The line of credit can help you cover a lapse in cash flow for short periods of time. Just be sure not to borrow too much, and always have a plan in place to pay it back on time.
Seek Expert Help
Now more than ever, a keen eye on cash flow is vital for your business. The business bankers at PeoplesBank can suggest cash management strategies to help you further boost your cash flow. Contact our team to schedule a customized planning session today.