How to unlock cash within your business

How to unlock cash within your business

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As a business owner, have you ever been caught short of cash? What if I told you that the solution to your cash flow woes might be hiding in plain sight? Yes, you heard it right and with cash being king this may be the best business advice we can give. Your business may already possess the funds you need, locked up in assets, stock, or your debtors. In this post, we’ll break down three areas you can check to free up funds within your business.

Convert assets into cash

Your business assets, be it debtors, stock, prepaid expenses, vehicles, or equipment, are potential sources of funds.

Debtors:

Effectively managing debtors is often the best form of ensuring positive and sustainable cash flow for a business. Start implementing the following steps and then seeking expert business advice to most effectively plan and manage your debtors to secure maximum cash flow benefits.

  • Late-paying customers essentially represent untapped cash flow.
  • Send out invoices promptly. Your cash flow depends on it, so receive payment as soon as possible. Slow invoicing leads to delayed payment. Avoid accumulating invoicing work until the end of the month. Invoice immediately.
  • Accept mobile payments to speed up the payment cycle.
  • Eliminate the step of sending statements by including a note at the bottom of the invoice: ‘Please pay on this invoice as no statement will be sent.’
  • Consider changing payment terms for some customers or new customers. Can you reduce payment terms from 30 days to 7 days from the invoice date? What about payment on delivery?
  • Always promptly follow up when invoices aren’t paid by the due date. Be polite but firm, sending monthly statements can accomplish this. If you don’t have time to do this yourself, appoint someone to handle it for you or use tools that automate follow ups for you.
  • Make it easy to get paid, accept as many forms of payment as practical, for example: cash, card, direct deposit, PayID, cheque.

Stock:

Do you have excess capital tied up in stock? This can happen in two ways:

  • You have high levels of items that are readily available from suppliers.
  • You have too many slow-moving stock items and too few fast-moving items.

Better management can address both issues and free up cash. Here are some actions you can take:

  • Regularly review stock levels, turnover rates, and purchasing policies to reduce stock without impacting the business.
  • Consider holding a sale to quickly generate cash by reducing old stock.
  • If you need funds to purchase more stock, replace slow-moving items with faster-selling ones.

Fixed Assets:

Under-used fixed assets can tie up a significant amount of cash. Consider selling off rarely-used assets and hiring equipment when needed. Prior to doing this seek advice from your accountant so as to avoid any tax surprises that may come of the sale.

Prompt customer collections

Don’t forget your customers can be a source of business funds. In addition to improving debt collection tactics, consider these strategies:

  1. Accept credit card payments: Ask credit customers if they would be willing to pay using their business credit card. You may incur a credit transaction commission, but you receive immediate cash for your business.
  2. Encourage cash payments: If relevant to your industry, promote cash payments to keep funds within your business rather than tied up in accounts receivable.
  3. Secure progress payments: If you provide goods or services over a period, try to obtain progress payments. This ensures cash flow during a project instead of waiting until the end to invoice and then waiting at least another 30 days for payment. Additionally, if the business you’re dealing with fails, you have at least received payment for completed work.

Leverage your suppliers

Consider your suppliers as a potential source of funds:

  • Can they take back excess stock if you’ve ordered too much for current trading conditions?
  • Ask for extended payment terms to sell goods before payment.
  • Request the supplier to split the order, paying normal credit terms for one half and 90+ days for the other.

Maintain good relations with key suppliers for their support during challenging times.

Final thoughts

Managing your business cash flow is all about proper employment of your assets, effective debt collection, and savvy supplier negotiation. Understand and unlock these hidden resources, and you’ll be surprised at how quickly your business’s financial health can improve.

If you need help with a plan, or require assistance with tax accounting services or other business advice, get in touch with us now!

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