As a business owner, you may find yourself celebrating the fact that you’ve hit your sales targets, only to be puzzled when that success doesn’t seem to translate into healthier cash flow. There are several reasons why this might be happening. Two common issues relate to accounts receivable and stock management, but other factors such as expenses, payment terms, and operational inefficiencies can also play a significant role. Here are four tips to help you turn your good sales figures into cash in the bank.
1. Better Debtor Management
How often do you review your debtors ledger? If you’re not chasing up customers who haven’t complied with your payment terms, you’re missing a critical opportunity to improve your cash flow.
At a bare minimum, run a debtors report at the end of each month. This will show you which customers still have outstanding bills. You might be surprised at how slow some of your key clients are at paying. And remember, if they get used to being able to pay late, they might continue to push your generosity to its limits. Automating your reminders can also help keep customers on track and save you time.shutt
Identifying your slow-paying customers might prompt you to reconsider your payment terms with them – perhaps you should ask for payment on order, rather than offering the usual credit terms. Or maybe it’s not worth keeping these customers – evaluate their worth to you, given the negative impact they can have on your cashflow.
2. Build Direct Relationships with Accounts Payable Staff
Establishing a relationship with a contact person in your customer’s accounts payable department can make a world of difference. By having a direct line of communication, you can ensure that your invoices are actioned promptly. This is especially useful when you’re following up on overdue payments, as your requests will be handled more quickly by someone within the department who understands the urgency.
Consider setting up automated invoice tracking systems that alert both you and your contact person when payment deadlines are approaching. This can pre-emptively solve the issue of late payments by keeping everyone informed and accountable.
3. Review Stock Ordering Processes
Your suppliers may offer volume discounts, which can be tempting. But is that 5% saving worth it if you end up discounting a significant portion of that stock just to get it out the door? Bulk purchasing can lead to cash flow problems if your sales forecasts don’t align with actual demand.
Take the time to assess whether purchasing in bulk is truly benefiting your business. Marking down stock by 50% because you over-ordered means you’ve lost half the potential revenue. Refining your stock ordering processes can help you avoid this pitfall, keeping both your inventory levels and your cash flow in balance.
4. Monitor Expenses Closely
Even with solid sales and good payment practices, rising operational costs – especially at the moment – can eat into your cash reserves. Regularly reviewing your expenses and finding ways to reduce unnecessary costs can have a significant impact on your cash flow. Implementing cost controls, negotiating better terms with suppliers, or even switching to more cost-effective solutions for everyday expenses can help preserve your cash flow.
If you would like to discuss additional strategies to improve cash flow, please contact the experts at Accru.