Should you take it easy if business is booming and forecasts for the next month or two come in as expected? Perhaps not. Cash flow is the lifeblood of any business, and if it isn’t closely monitored, everything else could go wrong, no matter how promising the outlook seems.
A drop in credit score and an increase in interest rates on future borrowing are possible consequences of even a temporary financial hardship that prevents you from making your debt payments on time. The loan could even be called by the lender if payments are missed for an extended period of time. We’ve compiled some ideas that ought to help you keep your finances in good shape.
Create A Cash Flow Budget
The projection of cash inflows and outflows on a weekly or monthly basis provides an essential snapshot of your company’s cash position and reveals whether you will have sufficient cash on hand to meet your needs.
To find out what the state of your business currently is, creating a budget so you can look at everything in more detail – and spot issues you may not even have realized you had – is crucial. Not only can you see exactly where your business is spending money, but you can see areas where you can reduce outgoings to maximize income, thus making your cash flow situation much brighter.
If it has been a while since you last evaluated the operational procedures at your company, it is probably time to take another look at them now. This may seem like an obvious statement to make, but it is to your advantage to commit as few errors as possible.
When you can monitor your cash flow, you can look at buying what is needed for your business, rather than having to wait or buy something that isn’t quite right due to budgeting reasons. Remember, the introduction of new technology could result in the discovery of novel approaches to cut expenses and boost productivity, so it works out every way you look at it.
Tighten Up On Credit
Before extending credit to newly acquired customers, it is important to first evaluate their payment history. The next step is to obtain credit reports and bank references, particularly if the amounts that are going to be involved are going to be significant.
If you have customers who are notorious for paying late, you should call them to remind them that their accounts are past due. Make persistently late payers switch to cash on delivery until they can prove they are able to pay according to your terms. In some cases, a collection agency may be the best step to take in order to ensure you get your money.
Resolve any shipping and billing errors as soon as possible to prevent customers from delaying payment, which could put a strain on your company’s ability to maintain a healthy cash flow.
Another way in which a shortage of funds can hurt is by forcing you to turn down expansion opportunities simply because you don’t have the cash on hand. Tightening all procedures up would eliminate this issue.