One of the most important aspects of your business is cash flow. If cash flow isn’t properly managed, it is possible to be making a profit but not be able to pay all the bills, which is a situation many people want to avoid. Cash flow is not as simple as how much money you are bringing in versus how much stock you have on hand. With inventory management software and the strategies below, you can work cash flow to your company’s advantage.
One of the first things you need to do is determine what your company’s cash conversion cycle is. Don’t worry. We won’t get too technical. Your cash conversion cycle is the amount of days it takes for your company to see cold, hard cash from the products sold. Most business owners have credit from their suppliers. Usually, this credit allows you to pay your suppliers once a month. This is your accounts payable. Then your clients request credit, and their accounts become your accounts receivable. Once you have received the money from your clients and paid your suppliers, the cash conversion cycle is complete. Work out how many days this cycle takes. Then try to come up with ways to speed the process up and get you cold, hard cash sooner.
Ensure that your accounts receivable policies are strict; do not be scared to penalize clients who pay their accounts late. Always send out your invoices in a timely fashion. Once you have a regular client base, you can generate a report on your accounts receivable, which will help you quickly and easily determine which clients might need a reminder about their account from time to time.
To manage your accounts payable, negotiate flexible payment plans with your suppliers. Ensure that you are not paying out money before you are receiving money. Make sure that you pay your suppliers before the deadline, so that you do not damage your company’s credit record. Electronic transfers allow you to pay your accounts on the day they are due instead of before they are due, giving you those few extra days to ensure you have indeed received money.
Your inventory can often be a very challenging aspect of your business to manage. Determining which products to keep more of and which are not selling as quickly as expected can be very difficult. There are many inventory management software solutions available online. Business self-help websites and books on cash flow will also assist you with these tasks.
To build a successful business you need to have positive cash flow. Once you understand your cash conversion cycle and have a good inventory management system in place, you will be able to fine tune procedures and build your cash flow positively, resulting in a successful business!