Businesses have lived with the mantra that “cash is king” for as long as many of us can remember. And that should come as no surprise. Business might be profitable on paper. But without actual cash in the bank, all that profitability counts for nothing.
And here’s the problem. Of all the small businesses that fail, 90 percent cite poor cash flow as the reason for their failure. Academic studies tend to back up this general story. Equifax, for instance, found that cash flow problems explained the spate of bankruptcies between 2008 and 2009. And studies by the Small Business Administration has found that insufficient capital is why a third of businesses fail in two years.
So with that said, what can businesses do to improve cash flow?
Get A Cash Advance On Your Accounts Receivables
One of the biggest problems faced in many industries is the delay between providing the service and getting paid. A good example of this is in the trucking and freight industry. As pointed out by LogisticsPage, there’s often a one- to three-month delay between delivering the service and payment. For many businesses, this can prove to be enough to wreck their cash flow. But, in the freight industry, at least, there is a solution. It turns out that there are companies who will buy your accounts receivable, at a discount. You get paid early for the freight you deliver, and in return, you give commission to the company taking on the risk.
Find Ways To Make Payment Quicker
The Small Business Association knows that slow payments can derail even the best businesses. That’s why they recommend a range of ways small businesses can speed up the payment process, whenever possible. One thing that Small Business Association recommends is that companies spring for a lockbox service. These post office boxes are serviced by banks and, therefore, are processed quicker. They can also ask customers to pre-authorise checks so that payments can be made immediately.
Increasing sales is the best way to overcome cash flow problems in both the short and the long run. But making that happen can be difficult. Getting new customers often requires businesses to spend even more money which, often, they do not have. One thing companies can do in this situation is appeal to their existing customer base. Selling additional services to existing customers is a quick fire way to raise money with minimal outlay. But, be wary. Increasing sales is only going to improve a bad cash flow situation if the money goes straight into your account. If it doesn’t, you’re not going to be any better off than before.
Reduce Customer Credit
To attract customers, small businesses often offer credit on their purchases. But extending credit to customers is a risky and costly business. Customers might not always be able to pay on time. And too many customers may indeed go for the credit option.
One thing that businesses can do is get a credit report on any potential customers, whether businesses or individuals. If their credit score is low, avoid offering credit on the sale.
Lina Martinez has her B.S. in journalism and is a contributor to our politics, life and money pages. She once admitted over drinks to singing "Careless Whisper" in the shower. We are still trying to get her to sing it at karaoke.