While sales are the muscles of a business, cash flow is its lifeblood. You need constant cash flow to pay salaries, buy materials, and keep the lights on. Many companies are forced to slow their growth simply because they lack the cash inflows to support necessary outflows.
By regulating your cash flow and increasing the spread between money coming in and going out, you build a cash cushion essential for long-term, sustained growth.
8 Practical Strategies to Improve Your Cash Flow
1. Smart Banking: Juggle Funds Between Accounts
Keep the bulk of your funds in higher-interest term deposit accounts, transferring only what you need to meet monthly expenses into your interest-earning checking account. This maximizes your interest earnings while keeping necessary cash accessible.
2. Declutter for Cash: Dispose of Unused Assets
Idle equipment and obsolete inventory tie up capital and take up space. Consider selling:
- Equipment that’s been owned long enough to have minimal book value
- Inventory unlikely to be used in the next 12 months
This converts dormant assets into working cash.
3. Secure Your Position: Request Deposits on Large Orders
For custom or large orders, require a minimum 50% deposit. This protects you from being stuck with one-of-a-kind products and reduces financial risk. Make sure customers understand this policy upfront and include it in contracts.
4. Smart Contracting: Stagger Payments on Long Contracts
When customers refuse deposits, negotiate payment terms that parallel your costs. A typical construction contract might include:
- 25% payment to purchase materials
- 15% when materials are delivered
- 50% at specific progress benchmarks
- 10% upon final inspection and acceptance
5. The Carrot: Offer Discounts for Early Payments
Develop a discount program to encourage faster payments. Standard terms might offer 2% discount if paid within 10 days, with normal net-30 terms. Adjust based on your needs and customer payment history.
6. The Stick: Penalize Late Payers
Implement interest penalties for late payments. While you may not always collect, the policy emphasizes the importance of on-time payments and gives you leverage when needed.
7. Outsource Collections: Hire Professionals for Old Receivables
Pursuing accounts over 60 days old often reaches diminishing returns for your staff. Third-party collection agencies:
- Work on contingency (percentage of collected proceeds)
- Sometimes purchase delinquent debt outright
- Free up your team to focus on revenue-generating activities
8. Creative Sales: Introduce Layaway Programs
Layaway programs allow customers to reserve products while making payments. You get cash before delivery, reducing your inventory financing costs.
Bonus: Maintenance Over Replacement
Often, repairing equipment is more cost-effective than replacing it:
- Establish regular maintenance programs
- Use reconditioned parts from third-party suppliers
- Remember: most office equipment becomes obsolete before it wears out
Start Building Your Cash Cushion Today
Implementing even a few of these strategies can dramatically improve your cash flow situation. The goal is to create a buffer that allows your business to weather unexpected challenges and seize growth opportunities.
“A wealthy person is simply someone who has learned how to make money when they’re not working.” – Robert Kiyosaki
Which of these cash flow strategies will you implement first? Need help optimizing your business’s financial health? Contact us today for personalized cash flow management solutions!
