Your business achieves positive cash flow when the inflow of cash is higher than the outflow. While that increase in funds does not equate to profitability, establishing positive cash flow is crucial for the survival of your business.
“Positive cash flow is the lifeblood of any successful business. It starts with profitability: If you don’t have that positive cash flow, you will not achieve longevity,” says Vince Zamora, Financial Analyst at Deluxe Corp.
Here are Zamora’s top tips for improving your cash flow today:
1. Collect payments quickly
Bill your customers quickly, and offer incentives for fast payments. Any unpaid debts in your budget will harm your bottom line.
“The faster you can collect your money and the longer you can pay off your vendors, the healthier your cash flow is going to be,” says Zamora.
2. Negotiate with vendors
If you are in good standing with vendors, negotiate alternatives to large prepayment agreements. For example, if you prepay for a bulk order of materials, ask if you can pay in installments instead. Implementing installment payments throughout the year can expand your access to monthly operating cash, even though you may pay a little bit more over time.
3. Push preorders
Restructure agreements with your customers to order in bulk, pay up front for products and services, or subscribe to regular reorders. Offer discounts to make preordering an attractive option.
“Negotiating customer agreements toward up-front payments is a great way to increase operating cash,” says Zamora.
4. Keep an eye on your budget
A key mistake that small businesses make is failing to create a budget, opting instead to use financial statements or bank account balances to assess the health of their business and track their cash flow. But these documents offer a narrow view of your financials.
A budget provides a clear picture of your profitability, improves your cash flow and helps you track progress toward your long-term business goals.
For more information about creating a financial plan for your small business, check out our Budgeting 101 webinar recording or download this free template to get started.
5. Pay and get paid instantly
If your customers or business partners pay you by check, the time spent waiting for payment to arrive in the mail diminishes your cash flow. Explore payment tools that allow you to pay and get paid instantly, such as Deluxe eChecks. Deluxe eChecks empower small businesses to send checks via email. The system is secure, fast, and affordable — and allows you to send payments at the last minute instead of building in time for the mail to be delivered. By enabling you to make near-instantaneous payments, Deluxe eChecks let you make use of your cash for longer.