6 ways to improve your company’s cash flow
If your company is facing challenge sin managing its cash flow, you are not alone. Several promising companies, with highly profitable businesses and great teams have run out of operating capital and shut shop.
Maintaining a healthy cash flow has been a concern for most Indian SMEs too. Here are 6 effective ways to overcome this potential problem:
Different ways of market development by MSMEs are:
The first step to managing your cash flow is to have a holistic view of your finances. This is possible only when your company manages its books of accounts well. Most prescribed accounting principles and practices have in-built systems for checks and balances for cash flows, hence these processes should be followed well.
Today, there are various cost effective, cloud-based accounting software that offer real-time information about your business. Through a few clicks, you can know the total outstanding, overdue payments, key debtors, set automatic reminders, etc., and many other features which let you manage your finances well.
As a business enterprise, you know that a large chunk of your capital goes towards payments to vendors and suppliers. Build deeper relationships with these suppliers so that you can be assured of consistent quality and flexible payment terms. Forging strong relationships with suppliers is a long-term process. To build healthy relationships you need to:
Tightening inventory by implementing systems like just-in-time (JIT) not only boost efficiency but also improve cash flow. A shift from the earlier just-in-case strategy, JIT traces demand forecasts and allows you to order as and when required.
You can also use various inventory management software (ERP)that provide real-time information about raw materials and allow you to place orders at critical re-order points.
Delayed payments are a bane for every business. What it means is that much of the revenues are locked up. A recent report from the International Finance Corporation (IFC) stated that nearly 35% of Indian SMEs receive payments after three months of product delivery.
This is one of the major reasons for SME loan default. Hence, it is vital to regularly follow up with customers for payments. Enter into (and enforce) stringent contracts that safeguard you against delayed payments.
With cash crunch, it becomes even more imperative to reduce overheads. By opting for 'pay as you use' or monthly subscription models, you can reduce the burden on your finances. For example, renting computers instead of purchasing will reduce your capital investment. Using shared services (like cloud storage), outsourcing specialist jobs (like recruitments), and taking steps for regular preventive maintenance are some of the ways to reduce overheads.
Be open to innovative and disruptive ideas that have the potential to positively influence your business. For example, you can consider procuring through B2B e-commerce portals. Studies suggest that B2B e-commerce platforms can bring down inventory cost by up to 40% and help SMEs with higher bargaining power, capital adequacy and reduced warehousing costs.
- Stay on top of your finances
- Maintain a good rapport with your suppliers
Such relationships are also important for maintaining a tight control over inventory.
- Interact with your suppliers regularly
- Pay their dues promptly
- Communicate if you foresee a delay in payment
- Avoid rush orders (whenever possible)
- Address issues immediately as they arise
- Tightening inventory
- Regularly follow-up with customers for payments
- Reducing overheads
- Be ready to innovate