5 Effective Ways to Solve Business Cash Flow Problems
Dealing with a cash flow crisis never gets easier, which is why it is important to learn how to solve cash flow problems and know how to fix cash flow problems. It often takes a toll on your business, especially when it’s not remedied immediately. For this reason, here are five ways to effectively solve cash flow issues.
Related: 6 Crucial Factors that Affect Your Cash Flow
1. Improve Invoicing Process
Is the accounting system you use to invoice your clients efficient enough? Is the entire process fully automated? If you’re still using pen and paper to invoice your clients, it’s time to get an upgrade. Automating your invoices makes it easier for you to send and collect invoices from your clients; letting you know who’s paying on time and who’s overdue, and it also helps reduce human error.
You can choose from a variety of accounting automation software such as QuickBooks, NetSuite, FreshBooks, and more. With an accounting software, you can integrate all your financial information in one place and send invoices directly to your customers.
2. Avoid Purchasing Unnecessary Inventory
Many business owners think they need to hoard merchandise to ensure they have what their customers might need. While it’s important to meet the demands of your customers, it’s also important not to go overboard. Working capital ties to unsold inventory are one of the most common causes of cash flow problems among small businesses. It’s better to keep your warehouse stocked at a level that meets, but doesn’t exceed customer demand.
Before stocking up, evaluate your business and figure out which sells more. Start out with a small amount of inventory and go from there as demand increases. If you’ve run out of a certain item, ask your customers for their contact details so you can inform them when it’s back in stock. Additionally, you can use the contact details to send newsletters to your customers (with their permission).
3. Cut Back on Expenses
Cutting back on expenses seems like a no-brainier approach when it comes to fixing cash flow problems. Just be sure to check that you’re cutting back on the unnecessary expenses, and not ones that can actually hurt your business.
For example, instead of buying reams of paper that costs $$$ every month, you can reduce expenses by going paperless. Another example would be purchasing secondhand equipment instead of new ones. Reducing unnecessary expenses allow you to maximize the amount of cash flow your business receives.
4. Encourage Your Clients to Pay Faster
Companies with cash flow problems can’t wait for 30 to 90 days before getting paid. For this reason, it’s important to encourage your customers to pay faster by making it easier for them to do so. Setting up an auto-billing cycle for your clients helps a lot. You can automatically receive regular monthly payments directly from their bank accounts or from their credit card. By knowing exactly when the cash is coming in, you can effectively manage your cash flow.
Another way to encourage your customers to pay faster is to accept online payments. Paying bills with credit cards are super convenient. If your clients can pay online, they may be encouraged to pay their invoices immediately.
5. Have an Efficient Stock Management
Remember that your money is tied up on the stocks you have in your business. If you don’t monitor where your inventory goes, then it would be harder for you to determine where your money will go, as well. With that, entrepreneurs must ensure that the physical inventory they have will reflect the books. A weekly or monthly inventory check can help you stay on top of your stock management. In turn, this will ensure that any discrepancies in your inventory and cash flow will be detected earlier.
6. Apply for a Small Business Line of Credit
One of the important things a business must know is how to fix cash flow problems, and the quickest way to fix pressing cash flow problems is to apply for short-term financing solutions – like a business line of credit. A business line of credit works much like a credit card where lenders assign you to a predetermined credit limit. You can withdraw funds from your credit line as needed and you only have to repay the amount you’ve withdrawn plus the interest, not the entire credit limit. A business line of credit is a great option if you don’t need a large amount of money. This type of financing can serve as a financial cushion for companies that want to prepare for the future.
Related: 4 Reasons Every Business Should Have a Line of Credit
Solve Cash Flow Issues with Business Line of Credit
Cash flow is the blood of a business. Without it, there’s no way any business would succeed, or even survive in a highly competitive industry. Knowing how to solve cash flow problems whenever a problem arises is crucial for any business. As mentioned above, a business line of credit is an effective way to instantly boost cash flow. Not only that, but it can come in useful in solving any cash flow issue, too. If you haven’t opened a line of credit for your business, yet, then this is the best time to do so.