In general, the term cash flow problems applies to funds not being available for use when the business needs it. Cash flow problems can range from being unable to make payroll on time to not having the cash needed to take advantage of an opportunity to grow.
A mixture of funding and non-financing options will usually repair your cash flow.
If you have an immediate cash flow problem, a short-term solution may be the quickest remedy if you don’t expect to collect any large revenue payments within the next day but the need for a more effective and permanent long-term solution may soon become more and more apparent.
This article will go over some of the ways in which totally solid solutions may be reached to this end.
5 Ways To Solve Cash Flow Problem
1. Form advantageous lines of credit with suppliers:
Another alternative which could boost your cash flow is to negotiate new or better terms of payment with your trading partners. Extending your payment time to a partner from due on receipt to due within 30 –90 days would allow you to hang on to more cash for a longer period.
You might look at getting new, or extended, terms of payment. Chose suppliers with a good payment history may be open to giving you terms of payment. When you already have trading partners with terms of 30 days and have been successful in paying them on time, consider negotiating a payment schedule of 60 or 90 days.
Extending your terms frees up cash now that your business partners would otherwise be paying and such an arrangement will free up your capital.
2. Freshly negotiate supplier contracts and look for new suppliers:
If you are constantly struggling to keep your head above water, you need to make a permanent change to increase your disposable cash.
This is particularly true when you find that adding revenue does not appear to increase your bottom line. One of the issues could be how much you bill your suppliers.
The aim is to look for higher gross profit which if achieved, will mean a great increase in disposable income but this isn’t a solution with immediate results, you can only see its results on a longer time span, usually a month or two.
You should also look for new suppliers if you feel your current suppliers aren’t doing enough or if you run into roadblocks trying to re-negotiate properly. If faced with such circumstances, it is necessary to actively search for other suppliers that can indeed over you better deals. Of course, negotiation is always key.
3. Improve the invoicing process:
If you don’t have a digitized system that you can use to invoice your clients, you should consider doing so. Most ERP system software such as Odoo come with advanced and detailed invoicing features by default or they come in the form of extensions or plugins that can either be downloaded free of charge or bought.
Recently, automation of such processes have greatly benefited businesses and brought them great revenue returns. Having an automated system to handle your invoicing can reduce or completely eliminate costly invoicing errors and delays, get invoices to your clients faster, make it easier to collect overdue invoices, and know which clients are paying within time and who are paying late.
4. Incentivize quicker paying:
Any small business owner with cash flow issues should ask themselves what they can do to make it easier for their customers to pay more quickly.
Providing your clients with a method or reason to pay you more quickly can improve their immediate cash flow needs. There are many ways to do this and depending on the circumstances of your company, you can get creative.
Signing up your clients for an auto-billing cycle where the money is either taken directly from their bank account or credited to a credit card each month on the same day would help you know exactly when the cash will reach your bank account.
This knowledge can help you to plan better how to spend the cash. Paying a credit card online is very convenient for your customers and if they have the choice of paying online, they may be more willing to pay the invoice directly upon receipt.
Furthermore, most people are cost-conscious and your clients would be happy to pay more quickly if it means that they will get a better deal or a discount as a result.
Such measures taken to ensure that your business gets paid on time is an easy solution to cash flow problems that does not require financing. Each company has different earnings cycles.
Paying you in the middle of the month may be helpful to some of your customers, while others would prefer the start of the month. Allowing them to select the day which works best for them will encourage them to pay you on time. That increases your ability to predict exactly what your cash flow is going to be.
5. Find any way possible to cut expenses:
A common approach to trying to fix a cash flow problem is to reduce expenses. However, by cutting big-dollar expenses that hurt your ability to generate revenue, it’s easy to go about this the wrong way.
There are other expenditure-reducing measures that should be taken first to maximize the amount of cash flow received by the company without damaging the business operations and to minimize the time.
There are many ways to solve the issues with your cash flow. Some cash flow solutions involve smarter invoicing and making your customers pay faster while others involve finding ways to cut costs. Every strategy will help you manage your overall cash flow and boost your ability to predict exactly how much cash you’ll get on hand at any given time.
Syncoria is a digital transformation firm based in Canada and is an official Odoo Ready partner.