Common Business Cash-Flow Mistakes: Tips to Avoid Them

Small business owners often run into cash shortages, sometimes of their own making. Here’s how to avoid being caught in the crunch.

Every business has cash-flow bottlenecks, but if your small business is so tight on cash that you find it difficult to pay salaries or meet day-to-day expenses, then it is time to look for the causes and find solutions.

Here’s how to avoid some common cash-flow mistakes – and ensure that your small business stays in the red.

Not Evaluating Your Clients’ Credit History

You should check out your client’s credit history; if you don’t, it’s very likely that those with bad credit will delay their payments. If this happens, you should cut back on how much products you are supplying them with and at the same time bill them for the maximum.

Once the matter is under control, then you can inform them that you will no longer be able to extend credit to them until they can guarantee that they will make their payments on time. The best way out of this problem is not to give credit to new customers until you have dealt with them over a certain period of time, or by running a credit report.

Even after you supply products and services to them on credit, ensure that you use good accounting software to keep an eye on your receivables. This way, you will know at an early stage if a client starts defaulting on payments.

Not Using the Services of an Outside Financing Company

If you are getting decent profit margins on your sales to credit customers, then you can employ the services of an accounts receivable financing company, which will provide you with ready cash, minus their fees against your credit invoices.

This will improve your cash flow and enable you to get bulk discounts and expand your business. Many of these companies also take care of your receivables. This will not only improve your cash flow, but you may also be able to shut down or limit your collection department operations.

Not Offering Cash Discounts

You can inform your customers that you offer a discount ranging from 1% to 2% if they pay for their purchases in cash. You will get faster payments, and your customers will enjoy the incentives.

You should communicate your offer to your customers so they know that they have a choice of saving some money by making their payments ahead of time.

Not Keeping Track Of Your Payments

If you do not have up-to-date payment records, then you could lose a lot of money on late payments. Your clients could take advantage of your inefficiencies – and that could lead to a cash crunch. Use automated accounting software to keep track of your pending invoices so that you get your payments on time.

If you have a collection staff to handle your collections, they should be supplied with real-time data so they do not call customers who have made their payments on time, or ignore customers who have not paid even after their payment is due.

Customers, sometimes due to genuine difficulties and sometimes due to dishonesty, can create a bottleneck in your cash flow. That’s why it is essential for you to remain alert and to keep an eye on all your customers, including those who regularly pay on time, to avoid cash flow problems.

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